February 3, 2023

Investment in Britain’s manufacturing sector is set to fall for the first time in nearly two years as companies begin to cut back as a recession looms next year.

Make UK, the trade body, said the balance of its members reporting an increase in investment intent over the past three months of the year has fallen from minus 5 percent to plus 7 percent. This was the first time in seven quarters since the peak of the coronavirus pandemic that the measure turned negative.

The quarterly Make UK/BDO Manufacturing Outlook survey released on Monday also forecast manufacturing to fall by 4.4 per cent this year, compared to a “very strong” 2021, and warned that further declines would follow.

In its September forecast, Make UK had still expected growth of 0.6 percent for the year and said the change in outlook highlighted “the extent to which conditions for the sector have weakened significantly, particularly in the last quarter of the year year”. It added that it expected a 3.2 percent contraction in 2023 as the UK entered recession.

The balance of manufacturers reporting an increase in orders also fell sharply in the last quarter, from 15 percent to 6 percent, with the measure falling to minus 2 percent for the first three months of 2023.

The data will put further pressure on the government to find ways to boost business investment, with companies across the country warning they will curb spending as economic conditions worsen.

The drop also comes ahead of the end of the government’s fiscal stimulus to boost business investment – the so-called super deduction tax relief – next spring.

Manufacturers have been hit by higher costs, especially in more energy-intensive industries, while many are still struggling with the costs and additional paperwork brought on by Brexit.

The government helped companies with energy costs for six months, but business leaders warned that the brink of collapse when this support ended in March could lead to widespread business failures if prices remained high. Meanwhile, with the UK and other parts of the world facing a recession next year, companies are worried that demand for their products will fall as well.

Make UK said deteriorating economic conditions exerted a “mischievous grip on the sector”, with rising costs, tighter fiscal and monetary policies and weaker consumer demand “forming a perfect storm”.

The industry has been frustrated by the lack of government efforts to help a vital sector of the UK economy, with no sign yet of a rumored new industrial strategy or growth-enhancing measures to boost investment, such as new tax incentives.

Stephen Phipson, CEO of Make UK, said the outlook for next year and possibly beyond was “simply not sugarcoated”.

He added: β€œThe UK risks sleepwalking into the acceptance that little or no growth is the norm. The government urgently needs to work with industry to achieve a long-term industry strategy that puts growth at the national and regional level.”

The government said it was continuing β€œto work to strengthen Britain’s manufacturing industry,” pointing to tax incentives including the annual investment deduction and the super deduction, adding: “Our autumn statement includes further measures to boost growth and productivity by investing in people, infrastructure and innovation.”

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