Recession fears for manufacturing ease, though significant growth remains elusive

Fears of a significant recession for industry this year have been dispelled with new figures that show North West manufacturers are seeing a rebound in activity in the first quarter of the year as the domestic and global markets have improved.

This is in contrast to a recent PMI Business Activity Index which indicated improvements in the service sector, which were not matched by the manufacturing sector.

The findings of the Make UK/BDO Q1 Manufacturing Outlook survey published today (March 20) show a marked pick up on the picture in the final quarter of 2022.

The figures echo the gradual improvements in other data such as the UK and European PMIs which are now only just in negative territory, as well as a strong pick up in demand from China.

According to Make UK and BDO, this improvement in the North West in particular could be down to a strong pick up in the aerospace and defence sectors, where the North West has a significant presence. The aerospace sector in particular continues to see a strong rebound from the pandemic.

Both output and orders picked up in the North West with an especially strong order balance of +21%.

This was driven primarily by export orders (+36%) which ties in with the strength of demand in aerospace. On the back of this improving picture, employers’ intentions to both recruit and invest also improved.

Looking forward, manufacturers in the North West are more confident about prospects with output and orders predicted to increase again, reflected in further improving job prospects.

However, despite the improvement this quarter, Make UK is still cautioning against the worst of conditions being over and is still forecasting a contraction for manufacturing in 2023 as the substantial challenges the sector is facing show few signs of abating.

Nicola Staley, North West region manager at Make UK, said: “Manufacturers in the North West have seen a rebound at the start of the year as conditions have improved in their major markets and, business confidence has improved.

“However, one swallow doesn’t make a summer and it is far too early to say the worst has passed given the significant challenges the economy faces. However, the Budget should help boost investment in the short to medium term although ideally, full expensing should be made permanent to better reflect the investment cycle for manufacturers.”

Graham Ellis, head of manufacturing at BDO in the North West, said: “Despite some good news in the aerospace and defence sectors, inflationary pressures are still very evident for UK manufacturers with increased costs still being passed on.

“Manufacturers require greater certainty from the Government on a range of fronts, including long term energy support and assistance to build a sustainable workforce. Recent announcements do little to address the immediate threats to the sector resulting from high energy costs.”

In terms of overall output this year Make UK is forecasting a contraction of -3.3% – a slight improvement from -4.4% forecast at the end of last year – and growth of just 0.8% in 2024.