UK manufacturing slumps as costs and trade worries mount: Survey

Britain’s manufacturing sector is struggling under the pressure of rising employment taxes, increased business costs, and growing fears of a global trade war, according to a new survey published by Make UK and business advisory firm BDO.

The latest data reveals a sharp decline in both output and orders, marking the first fall in output in a first quarter in over a decade. This downturn follows a significant slump in business confidence at the end of last year, the fastest decline since the pandemic.

According to the Manufacturing Outlook survey, the balance on output fell sharply to -1 per cent from +20 per cent in the last quarter, with total orders following a similar pattern, dropping to -6 per cent from +7 per cent. Export orders, which had previously helped offset weak domestic demand, also fell to +1 per cent from +10 per cent in quarter 4, while UK orders turned negative at -7 per cent, down from 0 per cent.

Recruitment intentions also turned negative at -3 per cent, down from +8 per cent in quarter 4, while investment intentions weakened to +5 per cent from +10 per cent.

Richard Austin, head of manufacturing at BDO, said: “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.”

A separate survey by Make UK conducted after the Autumn 2024 Budget in response to this much weaker picture, shows that almost half of companies (48 per cent) are freezing recruitment, while four in ten (41 per cent) plan to reduce pay increases. Around a quarter (27 per cent) are considering redundancies. Additionally, a third (34 per cent) are delaying investment plans, while 15 per cent have cancelled planned investments altogether, BDO said in a release.

Beyond employment costs, businesses are also being hit by a wave of rising expenses. More than 90 per cent of companies expect their employment costs to increase this year, while almost three-quarters (70 per cent) anticipate higher energy costs. A similar proportion (71 per cent) expect logistics and transportation costs to rise, and nearly eight in ten (79 per cent) report increasing raw material costs.

Make UK forecasts that the manufacturing sector will contract by 0.5 per cent in 2025, a downgrade from the previous forecast of a 0.2 per cent decline. However, the sector is expected to return to growth, expanding by 1 per cent in 2026. GDP is forecast to grow by 1 per cent in 2025 and 1.5 per cent in 2026.

In light of these challenges, Make UK is calling on the government to implement measures to mitigate the impact, particularly in reforming the business rates system to remove barriers to investment. The organisation is also urging policies to support industrial decarbonisation and address the country’s skills shortages.

Make UK has further stressed the urgent need for a fully funded, long-term industrial strategy that places advanced manufacturing at its core. Such a strategy should align with policies on energy, trade, and skills to reassure businesses and foreign investors that the UK has a cohesive plan for economic growth.

“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,” commented Verity Davidge, policy director at Make UK.

The Manufacturing Outlook survey was conducted between February 6 and 20, covering 306 companies. The Budget Impact survey included 256 companies and was conducted between January 6 and 21.

Fibre2Fashion News Desk (HU)