Manufacturers upbeat on recovery after ‘brutal’ 2020

X The Business Desk

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The region’s manufacturers are making “great strides” since the start of the year to recover from the “brutal impact” of the pandemic, with growth prospects becoming significantly more positive for the rest of the year.

According to a survey published today by Make UK and business advisory firm BDO, after a 10% decline in output in 2020, the sector in the UK overall is now set to recover a significant amount of that loss in 2021 and outpace the growth of the economy overall.

In particular, both UK orders and total orders were very strong for West Midlands companies in the last quarter while output levels were the highest of any UK region.

According to Make UK, demand in the West Midlands would also have been boosted by the recovery in the automotive sector and the resulting impact down the supply chain in the region.

As a result of the improvement in prospects, recruitment intentions were the second highest of any UK region. Investment intentions have also increased, partly due to better growth but also down to the super-deduction tax introduced by the Chancellor in the Spring Budget.

However, Make UK stressed that the figures are reflecting a recovery from a very low base with balances last year reaching record lows worse than those seen during the financial crisis.

Between 2019 and 2020 the manufacturing sector lost approximately £18bn in value which will take more than a short term boost of pent-up demand to return the sector to its pre-pandemic size. Yet, Make UK forecasts do suggest, assuming vaccine effectiveness is strong, that manufacturing output levels will return to pre-pandemic levels by the end of 2022, earlier than previous forecasts had suggested.

As a result of the surge in growth Make UK has upgraded its growth forecast for manufacturing from +3.9% to +7.8%, ahead of its forecast for GDP overall of +7.5%.

Charlotte Horobin, region director for Make UK in the Midlands, said: “Manufacturing growth is now firmly accelerating as restrictions have been eased and economies around the globe have started to open up. Looking forward there seems no reason to believe that this will not continue assuming the shackles come firmly off in the second half of the year.

“However, given we are coming from a very low base worse than during the financial crisis we have to bear in mind that there was bound to be a rubber band impact this year. Furthermore, for some sectors such as Aerospace the limited prospects for international travel in the near future means they may struggle to return to normal trading for some time.”

Jon Gilpin, head of manufacturing at BDO in the Midlands, added: “West Midlands manufacturers have fought hard to recover from the brutal impact of the pandemic and have made great strides since the start of the year.

“With investment levels on the up, it appears the government’s introduction of the temporary super-deduction tax has provided the incentive that regional manufacturers needed to bring forward their investment plans.

“We know targeted tax policies can have a huge impact but, with the melting pot of challenges ahead around supply chains, availability of basic commodities and rising inflation, we need the government to look at longer-term strategies to allow the sector to build back better and confidently invest over the next 10-15 years.”