Export orders fall in response to trade difficulties with the EU
- Output volumes are up and UK orders improve
- Export orders decline, likely arising from business both in the UK and EU yet to settle into the new UK-EU trading arrangements
- Employment and investment intentions remain negative though significantly better than last quarter, employment expected to turn positive in Q2
- Expectations for next quarter more positive across all indicators
- Prices improve but margins decline
- Manufacturing growth forecast upgraded in 2021 to 3.9% from 2.7%
Britain’s manufacturers are beginning to move through the gears as growth prospects become more positive for the rest of the year, according to a major survey published today by Make UK and business advisory firm BDO.
The survey shows the brutal impact of the pandemic with the sector having seen a 10% fall in output in 2020. In contrast, as the vaccine programme gathers pace and major markets recover Make UK has upgraded its growth forecast for 2021 from 2.7% to 3.9%, though this shows that it will take some time to recover the 10% fall in output seen last year.
The survey also highlights that while UK orders have risen, export orders have remained negative despite a significant pick up in manufacturing in the EU. This would suggest that both UK and EU companies have yet to come to terms with the new trading arrangements with Make UK believing that there are impacts on trade which go beyond ‘teething problems’. Last week Make UK published figure showing three-quarters of companies were facing delays at ports.
While investment intentions are also still negative, they are significantly improved on the last few quarters, and Make UK hopes that the Budget announcement of a ‘super-deduction’ tax will provide a boost. Make UK added, however, that the UK has faced a structural problem with longstanding, relatively low levels of investment and that, given the incentive only lasts for two years, more longer-term measures will be required to make a real step change.
View the report here
According to the survey the balance on output improved to +9% which, to give some perspective, compares to -5% -36% and -56% in the previous three quarters, the latter in Q2 last year being the lowest balance recorded in the survey’s 30 year history. Looking forward output is expected to continue to improve with a forecast balance of +15% in Q2, back to average historic levels.
Total orders also improved to +9%, which compares to -3%, -40% and -53% respectively in the previous three quarters since the pandemic struck. However, there is a clear divergence between UK orders which improved to +6% and export orders at -8% (a small decline from -5% last quarter).
This is the first time that domestic orders have been positive since Q3 2019 which may reflect sourcing more locally given the increased bureaucracy and cost of importing components. Recent Make UK research showed that one in three companies reported they had no experience of Rules of Origin forms.
Whilst the balance on investment intentions also improved to -6% from -11% it has now been negative for four quarters in succession. While this may reflect the combination of the impact of the pandemic, political uncertainty and the debt many companies will have accumulated to stay afloat, to give some perspective of the extent of cutbacks in the last year the balance in the first quarter of last year was +20% as the December 2019 election unleashed a short lived investment boom.
The balance for recruitment also improved to -6% from -14% last quarter. Looking forward however, the picture for recruitment is expected to turn positive at +13% as companies begin hiring again. However, the picture for investment remains negative at -6% although given the survey was done before the Budget the next two quarters will give an indication of any impact from the incentive to invest announced in the Statement.
In addition to upgrading its forecast for manufacturing, Make UK has slightly upgraded its forecast for GDP for 2021 to 5.5% from 5.4%.
The survey of 314 companies was conducted between 27 January and 17 February.