- Input price inflation outstrips price rises
- Hiring and investment intentions are both slowing
Lobbying groups representing manufacturers are calling for the government to do more to promote investment and protect industry as firms in the sector report tougher economic conditions and a reduced appetite to spend more on their businesses.
Although both output and orders grew during the June quarter, the rate of order growth was described as “pedestrian” by Seamus Nevin, chief economist of manufacturing trade body Make UK on Tuesday.
Prices reached record levels for the fifth consecutive quarter but manufacturers are facing higher shipping and raw material costs, increased energy bills and wage demands as well as the “highest tax burden faced by business in over 70 years”, Nevin said.
Output inflation stands at 14 per cent, but input price inflation of 18.6 per cent is at its highest level since records began, according to Office for National Statistics data.
“Unsurprisingly, UK manufacturers are reporting continued declines in profit margins as the cost of doing business rises to unsustainable levels and raises the risk of higher insolvencies,” Nevin said.
The pressure on profits mean employment is slowing – the balance of manufacturers looking to make new hires fell to 9 per cent, from 26 per cent, while investment intentions “have taken a nosedive”, Nevin added, with companies either postponing or abandoning plans in response to elevated costs.
Make UK has downgraded its forecast for industry growth this year to 2.3 per cent, from 3 per cent three months ago and 3.3 per cent six months ago. Its growth outlook for next year has also been lowered to 1.7 per cent, from 2.8 per cent in the first quarter.
It called for a moratorium or reduction of business rates, deferrals on VAT and an extension of the “super deduction” investment policy, which allowed companies to reclaim 130 per cent of spending on plant and machinery as tax relief between April 2021 and March 2023.
“The government moved swiftly to implement the furlough scheme two years ago; it would be a wasted investment if the jobs saved then are lost now,” Make UK chief executive Stephen Phipson said.
He called for a longer-term vision for the sector, including a plan to tackle skill shortages.
These “remain widespread and are a key constraint on growth”, the Confederation of British Industry’s deputy chief economist Anna Leach said as it also reported slowing order book growth in the three months to June, albeit at elevated levels as companies continue to work through backlogs.
The CBI said skills shortages could be tacked by making the apprenticeship levy more flexible.
Others were less perturbed by the slowdown. Pantheon Economics said the growth numbers were “an encouraging sign” that prices may be peaking, which should allow the Bank of England to stick to its plan of gradually increasing the interest rate by 25 basis points at its next few meetings.
