UK manufacturing set to contract in 2023

12 December 2022

The Make UK/BDO Q4 Manufacturing Outlook survey shows manufacturing contracting by -3.2% in 2023. This comes on the back of a forecast -4.4% contraction this year, although Make UK stressed the number for this year is relative to a very strong 2021 which reflected the pandemic bounceback.

However, given Make UK has consistently been revising down its forecasts for manufacturing growth in 2022 throughout this year from 3% in March to 1.7% in July, 0.6% in September and now, a contraction of -4.4%, it highlights the extent to which conditions for the sector have weakened significantly, especially in the final quarter of the year.
As well as downgrading its forecasts for manufacturing Make UK is forecasting GDP growth of +4.4% this year but, a contraction next year of -0.9%. It has warned of the danger of policymakers sleepwalking into an acceptance of little or no growth as a normal economic scenario and has re-iterated its call for Government to develop a wide-ranging industrial strategy with a long-term vision at national and regional level.
Furthermore, while the Chancellor took some welcome measures in the Autumn Statement to help ease the short-term pressures on business, Make UK said more measures will be needed if economic prospects continue to weaken. These should include:
Stephen Phipson, chief executive at Make UK, said: “There is simply no sugar-coating the outlook for next year and possibly beyond. Even for a sector as resilient as manufacturing these are remarkably challenging times which are testing even the best and most successful of companies to the limit.
“As a result, while the Chancellor has already brought in some welcome measures to help ease the cost pressure on companies in the short term, it may not be too long before we see him having to bring more firepower to ease cost pressures.
“However, the bigger issue is that the UK risks sleepwalking into an acceptance that little or no growth is the norm. Government needs to work with industry as a matter of urgency to deliver a long-term industrial strategy that has growth at national and regional levels at its heart.”
Richard Austin, BDO’s National Head of Manufacturing, added: “Manufacturing input prices are growing rapidly, so it is little wonder UK manufacturers are having to pass the costs onto their customers in order to remain viable.
“Without the right government support and reassurance, manufacturing businesses will be inclined to retain cash to keep the doors open, rather than invest cash in future growth and competitiveness of the sector. There is little clarity on how the new government plan to build the right longer-term environment in which the sector can survive.
“The true impact of inflationary pressures and dwindling investment may not be immediately apparent in the sector, but they will be reflected in longer-term growth. For instance, with hiring being a challenge and energy prices rising, manufacturers may not have the funds to invest in automation and green initiatives, thus impacting the future competitiveness of the UK manufacturing sector.”
Looking forward, both UK and export prices are expected to continue falling to +48% and +47% respectively. While these figures remain very high by historical standards, they are a significant reduction on the figures seen over the last year.

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