UK manufacturing investment set to fall as recession looms

Investment in Britain’s manufacturing sector is set to fall for the first time in nearly two years as businesses begin to cut spending as a recession looms next year.

Make UK, the trade body, said the balance of its members reporting increased investment intentions in the last three months of the year fell to minus 5% from plus 7%. It was the first time in seven quarters, since the peak of the coronavirus pandemic, that the measure had turned negative.

The quarterly Make UK/BDO Manufacturing Outlook survey released on Monday also forecast production to fall 4.4% this year, compared to a “very strong” 2021, and forecast further declines to follow.

In its September forecast, Make UK had still forecast growth of 0.6% for the year and said the change in outlook highlighted “the extent to which conditions in the sector have weakened significantly, particularly in the last quarter of the year”. He added that he expected a contraction of 3.2% in 2023 as the UK entered recession.

The balance of manufacturers reporting an increase in orders also fell sharply in the last quarter, from 15% to 6%, with the measure falling to minus 2% for the first three months of 2023.

The data will put further pressure on the government to find ways to boost business investment, with businesses across the country warning they will limit spending as economic conditions deteriorate.

The drop also comes ahead of the end of government tax incentives designed to boost business investment – ​​the so-called super deduction tax relief – next spring.

Manufacturers have been hit by higher costs, particularly in the most energy-intensive industries, while many are still grappling with the costs and extra paperwork caused by Brexit.

The government has helped businesses with energy costs for six months, but business leaders have warned that the edge of the cliff at the end of that support in March could lead to widespread business bankruptcies if prices remained high. Meanwhile, with the UK and other parts of the world facing a recession next year, companies fear demand for their products will also decline.

Make UK said deteriorating economic conditions were exerting a “grip on the sector”, with rising costs, tighter fiscal and monetary policy and weakening consumer demand “forming a perfect storm”.

Industry has grown frustrated with the government’s lack of effort to help a crucial sector of the UK economy, with no sign yet of a new industrial strategy or growth-friendly measures to boost investment, such as new tax incentives.

Stephen Phipson, chief executive of Make UK, said there was “simply no sugar coating on the outlook for next year and possibly beyond”.

He added: “The UK risks sleepwalking into accepting that little or no growth is the norm. The government must urgently work with industry to put in place a long-term industrial strategy focused on growth at the national and regional levels.

The government said it was continuing working to strengthen the UK’s manufacturing industry,” highlighting tax incentives, including the annual investment allowance and the super-deductor, adding: “Our autumn statement set out new measures to boost growth and productivity by investing in people, infrastructure and innovation.

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