MANUFACTURING IN THE REGION - The Business Magazine South East

The manufacturing industry has had a tough ride recently, but things might just be improving

It’s been the toughest five years for manufacturers. Brexit, the pandemic and the Ukraine war have each impacted variously on labour shortages, supply chain issues and soaring utility prices, to name the biggest issues.

But, whisper it quietly, could UK manufacturing have turned a corner?

According to manufacturers’ organisation Make UK’s latest Manufacturing Outlook, manufacturers say they are experiencing their calmest operating conditions since 2020. It’s by no means plain sailing, but the daily firefighting for some is not as desperate as it has been.

Seamus Nevin, Make UK’s Chief Economist, said: “Despite inflationary headwinds, the short-term future does offer a glimmer of consistency. The UK’s manufacturing sector has shown remarkable stability in recent quarters. Our industry has demonstrated time and again its ability to adapt, innovate and find ways to navigate difficult economic conditions. The resilience that defines us remains unwavering, propelling us to innovate further and secure a prosperous future for both the industry and the jobs it provides.”

When will the UK get the industrial strategy it needs?

But serious issues remain. The UK’s manufacturing industry needs proper support from government. Over the last 10 years there have been six industrial strategies. The latest one was shelved last year, but arguably none of them were proper strategies – more like thought pieces that belonged to the government’s various Departments of Business and weren’t really acted upon.

Make UK is becoming increasingly vocal in its calls to move the industrial strategy conversation up to Cabinet Office level.

James Brougham, Senior Economist at Make UK, said: “We are the only OECD country without a formalised industrial strategy. The Chancellor, Jeremy Hunt, says we do have one – it is the sum of the business policies in place. But we think that’s unsatisfactory. Make UK is calling for an industry strategy and for it to be the responsibility of the Cabinet Office.”

The UK manufacturing sector is an essential contributor to the country’s economy generating £206 billion gross valued added last year – a fifth higher than a decade ago.

It accounts for around half of UK exports, two-thirds of spending on research and development and a significant level of business investment.

The sector also employs around 2.6 million highly-skilled people across the UK, many of them in areas that need levelling up. In short manufacturing matters to the prosperity and security of the UK.

Worrying competition from USA as it rolls out major finance incentives

But there are other headwinds too, not least the USA government’s announcement last year of its Inflation Reduction Act.

This is a landmark US federal law aiming to curb inflation and a big part of the Act is the intention to invest billions of dollars into domestic energy production.

This has already resulted in drawing green investment to the States from the UK and EU. Could this mean that UK manufacturers could up sticks and move to the USA?

While it’s not impossible, particularly for multi-national companies, to decide to build a new facility in the USA rather

than the UK, it’s less likely for small companies because it’s not only hugely expensive to relocate, but the USA’s regulatory frameworks make it complex for smaller businesses – and labour shortages are as serious in the land of the free as the UK.

So what are UK manufacturers doing?

James says that Make UK is seeing a major uptick in investment in automating and digitisation.

“The main sticking point for manufacturers post-Brexit was labour, and that’s still the case. Transient labour helped plug the gaps but now that’s more difficult, along with the postCovid world of working where people want to work from home, or simply work less. The solution is a five to 20-year investment in domestic skills, which we are supporting.”

But that won’t solve today and tomorrow’s challenges.

“Automation and digitisation are no longer a nice-to-have for forwardthinking manufacturers, it’s a need-tohave for almost all,” added James.

And while the cost of borrowing is continuing to rise, which will cut the amount of capital expenditure some companies are willing to invest, others are bravely going ahead and committing to such investment.

Manufacturing margins are improving, and the sector is regaining margins it lost over the past few years. Exports are also improving. Make UK’s report

revealed in June that for the first time since 2020, they have met or exceeded UK orders.

Although it may be too soon to tell, Make UK’s Manufacturing Outlook was confident enough to say that the unexpected bounce back which occurred at the start of the year may not be just a blip in the data.

Manufacturers are finally reporting strong balances across all measures of orders and while the growth is not astronomical it is modest enough that can mean business as usual may be returning.

Regional outlook for the South East

Confidence is up among manufacturers across the South East.

The South East and London accounts for more than 38 per cent of the nation’s output and the region’s productivity is the best in the UK.

Half of all exported goods manufactured in the region go to the European Union. Around 18 per cent go to Australia and the Far East and the remainder to North America.

Orders in the South East have exceeded the average, but employment growth has underperformed the average.

 Source: Make UK’s Q2 Manufacturing Outlook