UK manufacturers end year with output growth, but confidence weakens

Make UK and BDO cautioned that the improvement does not signal a sustained recovery. Manufacturing output is forecast to grow by just 0.5 per cent in 2025 before contracting by 0.5 per cent in 2026, reflecting fragile demand conditions and rising cost pressures.

Alongside the survey, Make UK released new analysis showing that matching Organisation for Economic Co-operation and Development (OECD) investment levels by 2035 could deliver a £670 billion (~$897.8 billion) boost to the UK economy over the next decade. UK investment intensity averaged around 17 per cent of gross domestic product (GDP) between 2013 and 2024, compared with an OECD average of about 22 per cent.

Achieving this level would require annual increases of around 0.5 per cent, with the private sector contributing roughly 60 per cent of the total. Manufacturing alone could attract an additional £44 billion in investment by 2035.

“After a difficult twelve months when manufacturers have faced multiple challenges across all fronts, it’s a relief to see the year ending on a more positive note. However, the prospects for any form of significant growth remain remote and, with rising employment costs and any help on energy still well over the horizon, companies will have little inclination to fill up the punch bowl to start the party,” said James Brougham, senior economist at Make UK.

“It’s now essential that government brings forward the proposed energy support scheme and at the same time, extends it right across the sector so the broadest possible range of companies are covered. With firms set to take a hit on increased employment costs including National Living Wage rises, employers want to see reassurances from government that the upcoming Employment Rights Bill will not add further financial burdens on businesses, otherwise the jobs market will remain weak,” added Brougham.

“This year has been a volatile one for UK manufacturers. Whilst the last six months have shown tentative signs of growth in output and orders, the sector is lacking the confidence and assurance they need to put their hands in their pockets and invest,” said Richard Austin, head of manufacturing at BDO.

“Last month’s Budget gave manufacturers some relief in terms of investment, green transition and some positive skills measures but it fell short in addressing some of the biggest concerns the sector is facing. Businesses need decisive action if growth is to be realised,” added Austin.

The survey showed the balance on output eased to +13 per cent from +25 per cent in the previous quarter, though expectations for the next quarter improved to +19 per cent. Total orders followed a similar trend, easing to +3 per cent from +16 per cent in Q3, but are forecast to recover to +19 per cent.

Export and UK orders were evenly balanced at +20 per cent in the final quarter but are expected to diverge sharply in the next period, with export orders weakening to +3 per cent compared with +27 per cent for UK orders. The US slipped to third place behind Asia and Oceania as a growth market, signalling a continued shift by UK manufacturers towards alternative overseas destinations.

Recruitment intentions fell sharply to +3 per cent from +15 per cent in Q3, while investment intentions eased to +19 per cent from +25 per cent, remaining elevated by historic standards despite the softer outlook.

The survey covered 263 companies and was conducted between October 27 and November 20.

ALCHEMPro News Desk (SG)