UK manufacturing sector still optimistic despite slowing growth

The UK manufacturing sector faced great pressure during 2020 as a result of Brexit and the coronavirus pandemic.

UK manufacturing purchasing managers index (PMI) reached a record high of 61.50 in January 2011 and hit an all-time low in April 2020 at 32.60. 2021 also got off to a slow start, with British manufacturers reporting their slowest output since May 2020.

Although the UK economy during Q1 has taken a hit as a result of the UK’s third national lockdown, manufacturers are hopeful for a stronger second half of the year as the economic outlook for the UK becomes more optimistic.

James Brougham, an economist at industry body Make UK said “continued COVID-19 related disruption, now exacerbated by manufacturers’ cautious navigation of the new UK-EU trading arrangement, has created a scenario in which logistical and supply-side challenges are limiting the rate of economic recovery.”

The Bank of England (BoE) anticipated that the UK economy would shrink by 4% during Q1, but that the economy would recover more quickly than anticipated, now forecast to bounce back during early 2022.

Production growth during end of 2020

The end of 2020 saw a sharp increase in UK manufacturing production, though this is largely down to surplus orders from companies looking to secure stock before the end of the Brexit transition period.

Almost four months on from the end of the transition period, the UK’s imports and exports have suffered during continued post-Brexit uncertainties in cross border trading, as well as rising tensions between the UK and EU.

Recent data showed that German exports to the UK slumped by 30% in January year on year, whilst imports from the UK declined by 11.4%.

Still a positive outlook for the UK manufacturing industry

Despite post-Brexit and coronavirus concerns, the outlook for the UK manufacturing sector remains positive, as business confidence begins to rise with the reopening of the economy in just two weeks’ time. Attitudes remain positive and demonstrate an upturn in optimism since the rapid rollout of coronavirus vaccines, with over 30 million people in the UK now having received their first dose.

A positive outlook has contributed to strong employment within the UK manufacturing sector, Make UK report that the manufacturing sector employs 2.7 million people, who earn an average of GBP 32,500

Price pressures still a concern

Price pressures remain an issue for the sector, with elevated costs, largely due to the increased costs of raw materials pushing up vending prices. Input costs grew at one of the fastest rates since the survey began, although this has weakened over time. Manufacturers cited the weakened British pound (GBP) and ever-increasing commodity prices as the reasons for increasing costs, in addition to the knock-on effects of supply chain pressures, with vendor led times at the longest for nearly six years.

Atul Kariya, National Sector Head of Manufacturing and Engineering at MHA Macintyre Hudson, commented,

“The real concerns for UK manufacturers in the current marketplace are the cost pressures – from uncertain currency markets, increasing commodity prices, and additional costs across the supply chain.”

“Lack of certainty about whether these costs can be passed on to customers means that manufacturers are having to look inwardly at their processes and business models to find efficiencies wherever possible.”

Neil Lloyd, Sales Director at manufacturing expert solicitors, FBC Manby Bowdler, commented, “Whilst the weak sterling exchange rate continues to bring in the new work for UK manufacturers, the reports on strong domestic demand are welcome, and a sign that consumer spending has not yet been impacted by the steady rise in inflation.”

“It’s pleasing to see that job creation has remained strong across both the small and large businesses, a trend we’ve noticed in our own client base, which shows greater demand for HR advice than ever before.  The levels of optimisation are encouraging and I hope will continue.”

David Johnson observed, “I’m delighted to see continued confidence in the UK manufacturing sector. In the face of the ever-evolving European political and economic landscape, volatile exchange rates and continued uncertainty around the UK’s Brexit negotiations with the EU and its other key trading partners, such optimism is very encouraging indeed and yet Sterling is only just starting to reflect that.”

“As we have warned before, rising price pressures across industry could dampen the sector’s enthusiasm and performance, so this needs to be watched carefully and taken into consideration in both business and currency planning.”

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