Britain’s manufacturers have hit the buffers as a wave of increasing employment taxes and wider business costs bite hard, as well as worries of a global trade war according to new figures in a major survey published by Make UK and business advisory firm BDO.
Following the final quarter of last year when business confidence slumped at the fastest rate since the pandemic, this has now translated into a fall in both output and orders, with output falling in the first quarter of the year for the first time in a decade, a highly unusual occurrence according to Make UK.
In response, companies are freezing recruitment and considering redundancies, while investment plans are being delayed and, in some cases, cancelled altogether. As a result, Make UK is now urging the Government to consider measures to mitigate these actions, in particular reform of the business rates system to remove disincentives to invest and, policies to aid industrial decarbonisation and fix the broken skills system.
Furthermore, according to Make UK it is now essential that Government brings forward a comprehensive and fully funded modern, long term industrial strategy which has advanced manufacturing at its heart. This must be aligned across Government with a defence industrial strategy as well as energy, trade and skills strategies to demonstrate to business and foreign investors that there is joined up thinking on how to grow the economy.
Verity Davidge, Policy Director at Make UK, said: “Manufacturers feel like they are currently wading through treacle, facing barriers and increased costs being imposed on them at every turn. However, there is no more resilient a sector in the economy and, just as they have done in the past, they will find ways to adapt.
“The one light at the end of the tunnel is the prospect of a modern, long term industrial strategy which will enable them to plan for the future with confidence in a supportive policy environment. But, this cannot be a case of more jam tomorrow, come the summer it has to be a case of jam today.”
According to the Manufacturing Outlook survey, the balance on output fell sharply to -1% from +20% in the last quarter, with total orders following a similar pattern down to -6% from +7%. Export orders are no longer shielding a weak domestic market, falling to +1% from +10% in Q4, while UK orders turned negative at -7%, down from 0%.
Recruitment intentions also turned negative at -3%, down from +8% in Q4, while investment intentions, although positive, weakened to +5% from +10%.
Richard Austin, Head of Manufacturing at BDO, added: “Against a backdrop of economic uncertainty, the manufacturing sector has relied heavily on exports to help protect it from other downward trends. As this data shows, we cannot be complacent - our manufacturers are resilient but they’re not invincible.
“While there are pockets of investment and opportunity, output levels are down across the board and, in order for manufacturers to continue their push on growth, they need targeted support from government, whether that be reducing complexity, streamlining trade or boosting access to capital.”
In response to this much weaker picture, a separate survey by Make UK in response to the measures announced in the Autumn 2024 Budget showed almost half of companies (48%) are freezing recruitment and four in ten (41%) will reduce planned pay increases. Worryingly, around a quarter (27%) are considering redundancies. Furthermore, a third of companies (34%) are delaying investment plans, while 15% have cancelled planned investments altogether.
As well as the impact on companies from increased employment costs, with more than 9 in 10 companies expecting them to increase this year, the survey also showed the scale of increases hitting companies from other business costs. Almost three quarters of companies (70%) expect their energy costs to go up this year, with a similar number (71%) seeing their logistics and transportation costs go up. Almost eight in ten (79%) are seeing raw material costs increase.
Make UK is now forecasting that manufacturing will contract by -0.5% in 2025, down from a forecast of -0.2% in the last quarter, before growing by 1% in 2026. GDP is forecast to grow by 1% in 2025 and 1.5% in 2026.
The Manufacturing Outlook survey of 306 companies was carried out between 6 and 20 February. The Budget impact survey of 256 companies was carried out between 6 and 21 January.
