Strong demand set to drive manufacturing boom

manufacturing sector

The manufacturing sector looks set to enjoy a better than expected year thanks to strong domestic demand.

Domestic orders have risen in the first quarter of the year, helping to offset the impact of the Covid-19 crisis and Britain’s departure from the EU single market, according to a report by the manufacturers organisation Make UK and BDO, the accountancy firm.

It said that companies were now “instilled with the confidence to do business” thanks to the acceleration of the vaccination programme and the government’s announcement of a road map out of lockdown. Make UK and BDO surveyed 314 companies between February 3 and 24.

A net balance of 9 per cent of respondents said that they had increased output during the period, up from -5 per cent in the previous quarter. The outlook for the coming months is even brighter, with a positive balance of 15 per cent of respondents expecting output to grow.

Growth was driven by domestic orders, which had a positive rating of 6 per cent, while export orders fell to -8 per cent. This is the first time that domestic orders have been positive since the third quarter of 2019.

Make UK said this may reflect “sourcing more locally given the increased bureaucracy and cost of importing components”.

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 begin to pick up.”

The organisation upgraded its annual growth forecasts for the sector from 2.7 per cent to 3.9 per cent. However, new non-tariff barriers between the EU and the UK are weighing on exports.

Official figures this week show that Britain’s exports to the European Union fell by a record 40 per cent in January, immediately after the Brexit deal came into effect. Businesses are battling with extra costs and confusion linked to new customs paperwork.

Richard Austin, head of manufacturing at BDO said: “While the results of this quarter’s survey are encouraging, the next six to nine months will nevertheless be critical for those manufacturers facing financial distress. Many will have deferred tax payments and taken on additional loans to help them through the crisis.“