Insights from the Manufacturing Outlook 2023 Quarter 4
The Manufacturing Outlook 2023 Quarter 4, as presented by BDO LLP in partnership with Make UK, offers a comprehensive view of the current state and future trajectory of the manufacturing industry in the UK. This insightful report delves into various aspects of the sector, including investment, employment, inflation, and government policies, providing valuable insights for industry stakeholders and policymakers.
Investment and Growth
The report highlights a rebound in both output and employment for UK manufacturers, signalling a positive end to the year. However, it also notes a stagnation in investment intentions despite improving margins. The significance of sustained investment in driving growth and efficiencies cannot be overstated. The Autumn Statement brought some welcome news for the manufacturing sector, addressing long-standing concerns and providing support for businesses of all sizes. Measures to encourage foreign investment and direct investment in key sectors such as automotive and aerospace demonstrate the government’s strong economic commitment to the manufacturing industry.
Inflation and Trade Cooperation
In terms of inflation, the report discusses a slowdown in consumer price growth, indicating a potential alignment with the high cost of living. However, challenges persist, particularly in the form of double-digit food inflation, which continues to burden consumer pockets. Moreover, the evolving Trade Cooperation Agreement (TCA) between the UK and EU presents a significant area of consideration for manufacturers. The report emphasises the need for vigilance regarding further developments in the TCA, as they may impact manufacturing imports and exports in the coming year.
Employment and Policy Landscape
The employment section of the Manufacturing Outlook 2023 Quarter 4 report provides valuable insights into the current state of the labour market in the manufacturing industry. The report notes that the Employment metric reported a balance figure just below zero last quarter, indicating an aggregate hiring freeze across the sector.
This sudden move came as firms became rapidly uncertain of their liquidity position over the coming quarters and looked to control the risks of a growing wage bill among other concerns. Despite this ‘freeze,’ vacancies have remained elevated in the sector, and this temporary cessation in hiring growth does not indicate that the labour shortage in the sector has come to an end.
As of November 2023, there are currently 69,000 (to the nearest thousand) live vacancies in the UK’s manufacturing sector, which is a slight reduction from the 70,000 figure that was reported in the third quarter edition of this report. As a ratio, that is for every hundred jobs in the sector, 2.8 are vacant. This represents a 0.1 drop from last quarter when the ratio was 2.9. Nevertheless, this figure is still approximately 50% higher than the long-run average for twenty years before 2020, illustrating the consistently elevated demand for labour in the sector since the pandemic.
The report notes that the Employment metric balance figure for this quarter has come in at +6%, a modest improvement from last quarter’s -1%, yet still well away from expansionary territory. What this figure reflects is a softening in the sudden and unexpectedly pessimistic outlook last quarter, but still a cautious view as to the trading environment in the coming first half of the year. Businesses are acutely aware that the suppressive effects of a sustained high base rate will continue to impact the sector over the coming months, and indeed year, so it’s likely that this employment figure will see a slow and steady return to growth, taking the significant assumption there are no further shocks to the sector in the coming six or so months.
The report highlights that labour shortages continue to be a significant challenge for the manufacturing industry. The pandemic has exacerbated the issue, with many workers leaving the sector or retiring early. The report emphasises the need for a strategic approach to address this ongoing challenge, including investing in training and upskilling programs to attract new talent to the sector. The government’s recent policy announcements, including measures to fund apprenticeships in growth sectors to upskill the workforce and smooth the adoption of beneficial technologies, demonstrate a recognition of the need to address labour shortages in the sector.
As the manufacturing industry navigates through various challenges, including labour shortages and a cost-of-living crisis, the report provides a nuanced outlook for the coming year. It emphasises the significance of long-term thinking and stable policy environments to secure the sector’s prosperity. While 2024 may not promise headline growth, the evolving policy landscape and the potential impact of an upcoming general election create an environment of cautious optimism for industry stakeholders.