New survey reveals what West Midlands manufacturers are expecting to happen to the economy next year

The forecast was made in the Make UK/BDO Manufacturing Outlook survey for the fourth quarter which shows manufacturing contracting by -3.2% in 2023. This comes on the back of a forecast -4.4% contraction this year, although Make UK stressed the number for this year is relative to a very strong 2021 which reflected the pandemic bounceback.

However, given Make UK has consistently been revising down its forecasts for manufacturing growth in 2022 throughout this year from 3% in March to 1.7% in July, 0.6% in September and now, a contraction of -4.4%, it highlights the extent to which conditions for the sector have weakened significantly, especially in the final quarter of the year.

In the last quarter, output in the West Midlands held up in line with the national picture at a balance of +4%, although it is forecast to drop substantially in the next quarter to a balance of -31%, again in line with the national picture. Orders for manufacturers in the Region are also forecast to decline significantly in the next quarter. Despite this recruitment intentions are holding up in the Region given labour shortages and the scramble to attract and retain talent.

As well as downgrading its forecasts for manufacturing Make UK is forecasting GDP growth of +4.4% this year but, a contraction next year of -0.9%.

In response, Make UK warned of the danger of policymakers sleepwalking into an acceptance of little or no growth as a normal economic scenario. It re-iterated its call for Government to develop a wide-ranging industrial strategy with a long-term vision at national and regional level.

Furthermore, while the Chancellor took some welcome measures in the Autumn Statement to help ease the short-term pressures on business, Make UK said more measures will be needed if economic prospects continue to weaken. These should include:

Alleviating labour shortages with temporary easements to the migration system and ensure manufacturers have the funds to train and retrain employees by expanding the tax exemption for work related training into a wider Training Investment Allowance.

Tackling the increased cost to business by extending business rates reliefs for retail hospitality and leisure to manufacturing

Spurring on much needed immediate investment by allowing first year allowances

Re-thinking recent decisions on the R&D tax relief for small businesses to ensure manufacturers are not deterred from investing in critical innovations

Charlotte Horobin, regions director for Make UK in the Midlands, said: “There is simply no sugar-coating the outlook for next year and possibly beyond. Even for a sector as resilient as manufacturing these are remarkably challenging times which are testing even the best and most successful of companies to the limit.

“As a result, while the Chancellor has already brought in some welcome measures to help ease the cost pressure on companies in the short term, it may not be too long before we see him having to bring more firepower to ease cost pressures.

“However, the bigger issue is that the UK risks sleepwalking into an acceptance that little or no growth is the norm. Government needs to work with industry as a matter of urgency to deliver a long-term industrial strategy that has growth at national and regional levels at its heart.”

Jon Gilpin, head of manufacturing at BDO in the Midlands, said: “Without a commitment for long term support from the government we will see a manufacturing sector which is reluctant to invest and adopt new technologies, such as automation, as businesses will hold onto funds to keep the doors open in the short term. Such an environment of uncertainty will have a negative impact on the future competitiveness and viability of UK manufacturing.

“We welcome the short term measures the government has announced to help UK manufacturers. However, the sector is in need of robust long term measures so businesses can plan for the future with confidence.”