Vaccine rollout success lifts UK manufacturing growth forecast

Suban Abdulla
·4 min read
Manufacturing output fell 10% in 2020. Photo: Getty
Manufacturing output fell 10% in 2020. Photo: Getty

Manufacturers in the UK are beginning to move through the gears as growth prospects become more positive for the rest of this year, a new study suggests.

According to research by Make UK and business advisory firm BDO, manufacturing growth forecast was upgraded in 2021 to 3.9% from 2.7%, as Britain's COVID-19 vaccine programme picks up pace and major markets recover.

Despite the upgrade, Make UK said that this shows that it will take some time to recover the fall in output seen last year. The brutal impact of the coronavirus pandemic has also been laid bare, with the sector seeing a 10% fall in output in 2020.

In addition to upgrading its forecast for manufacturing, the group has also slightly upgraded its forecast for GDP for 2021 to 5.5% from 5.4%. Figures on Friday, showed that the UK economy contracted less than feared in January by 2.9%, compared to a forecast of a 4.9% fall.

The survey of 314 companies was conducted between 3 and 24 February.

The balance on output improved to +9% which, compared to -5%, -36% and -56% in the previous three quarters, the latter (-56%) in the second quarter 2020 being the lowest balance recorded in the survey’s 30 year history.

Looking ahead 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%, compared to -3%, -40% and -53% respectively in the previous three quarters since the onset of the crisis. But, the group said there is a "clear divergence between UK orders" which improved to +6% and export orders at -8% (a small decline from -5% in the last three months).

It is the first time that domestic orders have been positive since Q3 2019, the survey shows. This may "reflect sourcing more locally given the increased bureaucracy and cost of importing components," Make UK said.

Recent Make UK research indicated that one in three firms reported they had no experience of Rules of Origin forms — a requirement since Brexit.

Currently, companies will not have to produce paperwork from their suppliers proving that their goods are locally made and eligible for zero-tariff access to the EU until 2022. The UK government has also delayed the introduction of full border control processes by six months to allow businesses to focus on their recovery amid the pandemic.

While UK orders have risen, export orders have declined, despite a significant pick up in manufacturing in the EU and other major markets, the survey also highlights. This could suggests that both the UK and EU firms have "yet to come to terms with the new trading arrangements."

READ MORE: Brexit: Three quarters of UK manufacturers face delays

Make UK believes, in line with Friday’s official data showing a plunge in exports to the EU that there are impacts on trade which go beyond "teething problems." The sector contracted by 2.3%, for the first time since the initial pandemic-driven fall in output in April 2020.

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," Make UK said.

It comes as, a separate survey by the UK's manufacturing lobby showed that three in four UK manufacturers are facing export delays due to Brexit. Make UK revealed that 74% of its members had faced delays in the last three months and many were still struggling to get goods through ports. A third of companies said they were losing revenue and a fifth revealed they had lost business.

Stephen Phipson, chief executive at Make UK, said: "After the seismic shock to the sector last year, manufacturers are now beginning to move through the gears and accelerate into recovery as demand at home increases and major markets also begin to pick up.

"Looking forward, we are now at an economic crossroads. We have a major opportunity for government and Industry to work together on a long-term vision which ensures we take advantage of the acceleration in technologies, our capacity for innovation and world class academic and science base. Future generations will not look back kindly if we do not grasp it."

Along similar trends, European manufacturers posted the fastest rise in growth in three years, and a jump in input costs.

The eurozone manufacturing PMI, which measures activity across the sector, jumped to 57.9 in February amid a surge in demand. That signals a strong increase in activity, up from January’s 54.8.

Germany, the Netherlands, Austria, Italy and France reported the strongest growth, with only Greece weakening to a two-month low.

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