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Supply, raw materials and import costs top UK manufacturing concerns

Nearly 90 per cent of UK manufacturing firms have been affected by the price and availability of raw materials in the past year, according to the annual manufacturing outlook survey conducted by national audit, tax, advisory and risk firm Crowe with the Confederation of British Metalforming.

Johnathan Dudley
Johnathan Dudley

Also 78 per cent say they have been affected by supply chain issues, with 66 per cent reporting that import costs have risen in the past 12 months.

Johnathan Dudley, Midlands and South West managing partner and head of manufacturing at Crowe, who is based at Oldbury, said: “Manufacturers’ financial results made for interesting reading as many firms recorded a strong showing in reporting for financial years ending December 2022 and March 2023.

“This reflected the optimism showed in our winter survey, when 60 per cent of firms said they expected their turnover to grow in 2023.”

Manufacturers exposed to the retail sector saw sales impacted by the dampening effect of interest rates and inflation on consumer spending.

Businesses in automotive manufacturing, aero and rail supply chains were able to pass on price inflation, whereas white electricals and food and beverage price rises have stunted sales for manufacturers exposed to retail headwinds.

Covid-19, geopolitical tension, the conflict in Ukraine and global inflationary pressures combine to ensure supply remains the most critical success factor for many businesses. Raw material price and procurement problems were at their peak in 2021, but pressure on supply remains high with a strong majority (88 per cent) affected by the price of raw materials in 2022-2023.

The lingering impact of Britain’s departure from the European Union is causing headaches as the post-Brexit regulatory landscape has become clearer. This is reflected by 31 per cent listing Brexit as a barrier to international trade, a much higher proportion than implied by previous survey responses – suggesting a delay in the true impact of the UK-EU split being felt and realised.

This barrier is not insurmountable, with 78 per cent of respondents successful exporters, but more than a third (35 per cent) indicate that the complexities caused by indirect taxes and duties, clear products of Brexit, have discouraged further expansion into new trading territories.

In the year ahead there is a potential trend towards re-shoring. Two-thirds report rising costs for goods imported. Local sourcing and greater control of supply chains is evidenced by 69 per cent saying they would consider re-shoring, but only 45 per cent of those currently importing say the same.

Though not possible for all materials (particularly semi-conductors), shortening or internalising of supply chains brings benefits including reduced stock holding and attendant working capital requirements, as well as helping organisations become greener and move towards net zero goals.

Labour is another priority issue, evidenced by three-quarters (76 per cent) of respondents experiencing difficulty in retaining or recruiting skilled staff. More training is required, alongside continued investment in digital manufacturing while a national campaign to promote the sector as a career choice for future generations would help to remedy the problem longer-term.

Mr Dudley added: “Pent-up demand, post-Covid, has fed through to resilient financial results for UK manufacturers. Supply challenges still remain, however, and the costs and administrative burdens of importing may drive a re-shoring trend which brings environmental benefits, too.

“Businesses face no shortage of challenges, including recruiting and retaining skilled workers, but a looming election provides hope for greater support and recognition of regulatory barriers for manufacturers in recognition of the vital role they play in the UK economy. Indeed, it is high time that a dedicated Minister for Manufacturing was established to unlock the sector’s potential and allow UK plc to benefit.

“For true thrival, manufacturing organisations must look beyond the immediate hurdles and seek out opportunities, whether that be through strategic change of approach, or more actively pursuing supply chain opportunities attached to large infrastructure projects such as HS2 or Hinckley Point.”

Stephen Morley, president of the West Bromwich-based CBM, said: “A strong and well supported manufacturing sector has a major part to play in the UK economy’s GDP and should be a cornerstone to build on for any government, whether it be this one or the next.

“There is a unanimous feeling that our voices are not being heard, with EU funding disappearing, the lack of an Industrial Strategy and a business support landscape that is ‘piecemeal’ for conglomerates with little or no help for what our companies require, especially SMEs.

“The call for a ‘Minister for Manufacturing’ is growing and we need the powers that be at Whitehall to act sooner rather than later.”

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