Manufacturing sector: Green shoots of recovery

Published by Rodney Sutton on 18 June 2021

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There have been many learned comments made by informed organisations such as Make UK and the Manufacturing Growth Programme based on surveys of multiple SME’s indicating that the manufacturing sector is showing robust recovery from the effects of the Covid pandemic and Brexit. Indeed, Make UK have doubled their 2021 growth forecast for the sector from 3.9% to 7.8%.  This means that the sector will be one of the leading sectors in the UK’s recovery, as the Bank of England have forecasted a 7.5% increase in overall UK GDP for 2021.

This sentiment is echoed in the US where with the continued success of the vaccination roll out, resulting in 50% of adults being fully vaccinated and with the economy largely open for business.  US manufacturers have been able to ramp up production to unprecedented levels so that analysts are forecasting that US GDP growth could achieve double digit growth by the end of 2021. This allied with the huge $1.9trn stimulus package introduced by the Biden administration aimed at boosting US infrastructure, has resulted in large increases in consumer and business demand so the ISM indicator of production activity has increased from 60.7 in April to 61.2 in May 2021.

In the UK, the sector has showed spectacular growth with IHS Markit Index, the Purchasing Managers Index (PMI) increasing from 60.9 in April to 65.6 in May. This was mainly due to increased domestic and foreign orders. Based on a barometer of sector confidence issued by the Manufacturing Growth Programme from a survey of 300 companies, nearly half of those surveyed indicated that they were forecasting a return to pre-pandemic levels within 3 months and 54% indicated the need to recruit further staff over the coming months. Furthermore, on the investment spending front, 58% of those surveyed indicated increases in investment spend in the next 6 months as they look to the future. On the payroll and jobs front, 80% of surveyed businesses stated that they had used the government furlough scheme but only 37% were still using it now.

In the EU, Spain and France lagged behind Germany and Italy in PMIs with German factories maintaining a strong run of increased output.

The above scenarios across the UK, EU and in the US certainly paints an encouraging picture but this recovery is very much dependent on the continued successful roll out of vaccinations in the UK and US, the EU catching up and most importantly getting the rest of the world vaccinated. Furthermore, supply chain needs to normalise, with significant shortages of metals driving up input prices by 50% and higher, the almost total non-availability of silicon for circuit boards and other products vital to the motor industry to function as normal. BMW Mini was recently forced to stop its production line for 3 days for lack of supply of silicon and with the increased forecasted investment spend, IT and those sectors likely to quickly recover and benefit may be hampered by this lack of supply. First-hand experience of this problem is that silicon supply vital to a manufacturers production process was being pushed out for delivery for late 2022.

The signs and indicators in the manufacturing sector are pointing to possible recovery in quicker than expected timeframes but there are few challenges currently and ahead that will determine whether real growth beyond returning to the flat line position at the commencement of the pandemic can be achieved.

To hear further views on the state of play in the UK economy, the Bank of England representative Phil Eckersley will be giving the Bank’s take on the current state of the UK economy with particular emphasis on the manufacturing sector. His Zoom digital address starting at 9.00am on 29 June 2021. The entire presentation along with questions from attendees and thoughts and insights from hosts being Rodney Sutton, Head of Manufacturing at Kreston Reeves LLP, Andrew Burton, relationship director at Barclays Bank and Dan Tozer, partner at Knights Plc nationwide solicitors will take 60 minutes finishing at 10am.

This presentation is run on “Chatham House” rules basis which means all discussions are confidential and that no recordings are made for public viewing.

To join this presentation please register here.

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