Government policies need industrial strategy to unlock long-term manufacturing growth

Government policies need industrial strategy to unlock long-term manufacturing growth

Time Stamp: December 8, 2023 9:31 PM
Source Node: 3003939

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has seen a uptick to 47.2, Mike Thornton, national head of manufacturing at RSM UK, says: “The manufacturing PMI in November increased to 47.2, up from 44.8 in October, with the three-month upward trend showing stabilisation, which could be the light at the end of the tunnel the industry has been waiting for.

Additional rises in the backlogs of work, employment, new export orders and output indices suggests that pipelines are being replenished as inflationary pressures start to ease.

“The government is clearly prioritising the sector with key announcements in last week’s Autumn Statement such as the launch of the Advanced Manufacturing Plan; the decision to make full expensing permanent and further commitment to regional investment zones. The suite of individual policies will provide some level of comfort to empower manufacturers to commit to long-term investments.

“Even the European Commission has offered a ‘Plan B’ to help mitigate the impact of the rules of origin headache that was coming down the track for UK manufacturers next year; but, it’s not all rosy. 

“The industry is now in its second year of contraction. Although the Autumn Statement delivered positivity for manufacturers through isolated policies, the government is still lacking an overarching, long-term industrial strategy. Ahead of the 2024 Spring Budget, industry will be hoping government takes a more holistic approach, like the US, to unlock growth, innovation, talent retention and greater certainty for investment.”    

Rachel Milloy, senior analyst in manufacturing at RSM UK, adds: “In 2024, we’re anticipating growth of just 0.5%, meaning the UK is set to face another year of stagnation. However, with inflation likely to fall by 2.5% in the second half of the year, and interest rates having also likely peaked, there are reasons for cautious optimism in 2024. 

“However, the economy is not out of the woods yet, labour shortfalls and rising employment costs are still a challenge for businesses, and the lagging impact of interest rate rises is likely to hit many more households next year, as fixed mortgages come up for renewal, squeezing budgets further. Growth is therefore likely to remain marginal over the next year, meaning that it wouldn’t take much of a deterioration in sentiment or an unexpected shock to the system to tip the UK into a recession. 

“These economic headwinds mean manufacturers remain in a vulnerable position as demonstrated through the PMI, which although steadily improving, remains below 50 showing the industry remains in contraction. Although welcome, targeted policies like we have seen in the recent Autumn Statement are not enough in isolation to enable the UK manufacturing industry to meet its potential against such economic head winds.  Highlighting again the need for strong government backing through an overarching industrial strategy which can foster demand, investment and growth for the industry. This will be needed for the UK to keep pace with our global competitors.”

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