UK Manufacturing Rebounds as Demand and Investment Improve

Make UK and BDO are reporting a renewed sense of momentum in Britain’s manufacturing sector for the first quarter of 2024. This uptick is fueled by easing economic conditions and a boost in both domestic and global demand, leading to an increase in output and orders. While the growth isn’t massive and challenges still loom, the anxiety over a severe recession seems to have eased.

According to the latest Q1 Manufacturing Outlook Survey from Make UK and BDO, early 2024 has brought a noticeable recovery in activity compared to the last quarter of 2023. This positive trend aligns with improved figures from UK and European PMIs, along with a surge in demand from global markets, particularly China.

Electronics and Mechanical Sectors Lead Growth

The most significant rebound has been seen in the electronics and mechanical equipment sectors. The electronics sector, in particular, has excelled, with the balance of orders hitting an impressive +64%, largely thanks to strong export demand from the EU, which stands at +67%.

Make UK and BDO suggest that this trend may indicate businesses are investing in digital capabilities, ramping up production to address labor shortages, or taking advantage of the final stages of the Government’s super-deduction scheme before it concludes.

Investment Outlook Strengthens

The survey also highlighted a notable increase in investment intentions, even before the Government’s recent Budget Statement that announced full expensing. However, Make UK emphasizes that for this to have a lasting impact, full expensing needs to be made a permanent fixture, as manufacturers typically have an average investment cycle of about seven years.

Despite these positive signs, Make UK and BDO are exercising caution. They predict that UK manufacturing will still see a contraction of 3.3% in 2024, with only a modest growth of 0.8% anticipated in 2025. Ongoing structural pressures and rising costs continue to pose significant challenges for the sector.

Business Confidence on the Rise – But Challenges Linger

“Manufacturers have seen a rebound at the start of the year as conditions have improved in their major markets and, business confidence has improved. However, one swallow doesn’t make a summer and it is far too early to say the worst has passed given the significant challenges the economy faces. However, the Budget should help boost investment in the short to medium term although ideally, full expensing should be made permanent to better reflect the investment cycle for manufacturers.”

Richard Austin, BDO’s National Head of Manufacturing, chimed in: “Recent government announcements do very little to address the immediate threats to UK manufacturers resulting from the heavy burden of energy costs. UK manufacturers need ongoing certainty on a range of fronts, including long-term energy costs, commitments and investment to develop UK gigafactories and support to attract a sustainable workforce. Manufacturers and investors need consistency and long-term support to build and shape their future plans around.

“The results of our research with Make UK illuminates that, despite glimmers of good news such as strong demand for electronics and mechanical equipment, inflationary pressures are still very evident for UK manufacturers with increased costs still being passed on. The data shows conflicting upward and downward indicators – potentially an industry at a crossroads. It will be fascinating to see which path will be followed over the coming months.”

Key Figures from the Q1 Survey

• Output balance climbed to +21% from +5%, with expectations to rise to +32% in Q2
• Total orders surged to +28% from +6%
• UK orders increased to +20% (up from +2%)
• Export orders saw an improvement to +12% (from -6%)
• Recruitment intentions jumped from +3% to +19%, with forecasts suggesting a rise to +31% next quarter
• Investment intentions soared from -5% to +14%, spurred by end-of-scheme incentives
• UK and export prices remained elevated at +52%, indicating ongoing inflationary pressure
• Output forecast: -3.3% for 2024, showing a slight recovery from the earlier prediction of -4.4%

Workforce Demand Remains Strong

Manufacturers are still putting a strong emphasis on bringing in new talent, and we're seeing a healthy amount of recruitment activity throughout the industry. The positive trend in hiring is likely to carry on into Q2, reflecting a sense of optimism about short-term growth, even in the face of economic challenges.

Conclusion

While the increase in orders and investments suggests that recovery is on the horizon, Make UK and BDO warn that the sector still faces significant structural issues—like rising energy costs, inflation, and access to long-term capital—that need ongoing attention. The survey indicates potential, but it also highlights the importance of steady policy support and industry collaboration to transform this recovery into lasting growth.

The Make UK/BDO Q1 survey gathered insights from 338 UK manufacturing companies between February 15 and March 8, 2024.