Manufacturing Faces Steepest Drop in Business Confidence Since 2020: Survey

Prime Minister Sir Keir Starmer (L) visits a factory in Chester, England, on Oct. 4, 2024. Darren Staples-WPA Pool/Getty Images

Rising costs have led to the sharpest dip in business confidence among British manufacturers since the onset of the COVID-19 pandemic in 2020, research released on Monday suggests.

A survey of 300 companies has found that optimism across the sector is declining owing to rising input and employment costs.

Make UK, a business organisation representing British manufacturers, said that 70 percent of manufacturers have seen their costs already increase by up to a fifth in the last year. Almost one in 10 had seen their costs increase by up to a half, the survey found.

The organisation’s Manufacturing Outlook report for the fourth quarter of the year showed that business confidence among companies has deteriorated considerably since the last survey in the third quarter, when almost six in 10 companies saw a brighter economic outlook under a new Labour government.

The Make Work Pay reforms under the current government, led by Prime Minister Sir Keir Starmer, aim to enhance workers’ rights, ensure fair compensation, and improve job security across the nation.

Under the reforms, almost nine in 10 companies will see their business costs increase, the survey said, adding that 44 percent of companies said the increase will be “significant.”

Senior economist at Make UK, Fhaheen Khan, said: “Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence.

“While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some.”

Rocketing Costs

Policy changes announced by Chancellor Rachel Reeves in October will drive an increase in business costs, taking effect in three phases over the next year.

The higher employment costs via employer National Insurance Contributions (NIC) and National Living Wage hikes will come into force from April.

Khan said there is an urgent need for the government to look at other measures which might mitigate the impact of the rocketing costs faced by businesses.

His remarks come amid a recent string of GDP figures reporting the contraction of the UK economy in October. This was driven by output falls in production and construction and no growth in services.

Manufacturers, wholesalers, and retailers among other industries said they were negatively affected by the Budget decisions. The Office of National Statistics reported a 0.6 percent decrease in manufacturing and no growth in the three months to October.

The largest negative contributions came from pharmaceuticals, machinery and equipment, and chemicals.

However, the manufacturing of computer, electronic, and optical products saw an increase of 1.8 percent.

Forecasts

The survey highlighted positive order levels and steady investment intentions within the sector. It revealed that export orders outpaced UK orders but projected a reversal in the next quarter, with UK orders expected to account for 8 percent and export orders for 7 percent.

The food and drink sector is set to decline slightly by 0.2 percent this year, followed by a sharper drop of 1.5 percent in 2025. In electronics, the survey predicted a modest growth forecast of 0.9 percent next year.

A flat forecast for growth is expected in electrical equipment manufacturing next year, while motor vehicles are set for a slight contraction in output.

Make UK said it had to revise its sector growth forecasts owing to the addition of employment costs to the existing costs the companies are already facing.

The changes in NIC led to predictions of a 0.2 contraction in manufacturing this year and growth of 0.7 percent in 2025. GDP is forecast to grow by 0.7 percent in 2024 and 1.4 percent in 2025.

Head of manufacturing at the BDO UK accountancy and business advisory firm, Richard Austin, acknowledged the declining optimism across the sector.

“An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term”, he said.

Austin added that increased investment in improving productivity is “vital now more than ever” for the UK manufacturing sector.