Make UK has released its Manufacturing Outlook Q4 2024 report, and the findings reflect a mixed landscape for the sector. While output and order levels show some positive trends, business confidence among manufacturers has taken a sharp hit due to rising costs and economic uncertainties. Despite these challenges, manufacturers have a critical opportunity to focus on operational efficiency and productivity to navigate the upcoming year.
Business Confidence Dips Amid Rising Costs
According to Make UK and BDO’s final Manufacturing Outlook report of the year, business confidence has fallen at its sharpest rate since the onset of the pandemic. This is largely driven by rising costs. Notably:
- 70% of manufacturers reported cost increases of up to 20% over the past year.
- Almost 1 in 10 manufacturers experienced cost increases of up to 50%.
- 86% of companies expect higher costs due to the Make Work Pay reforms, with 44% anticipating a ‘significant’ impact.
These rising costs, coupled with changes to National Insurance Contributions, have led Make UK to revise its sector growth forecasts. The organisation now projects a contraction of -0.2% in 2024 and modest growth of 0.7% in 2025.
Output Shows Improvement
On a brighter note, output levels have shown a significant boost this quarter:
- The output balance figure stands at +20%, a marked improvement from last quarter’s -2%. While this uplift helps paint a better picture for the year overall, it still falls short of the double-digit output growth seen in 2023.
UK Orders remain stagnant
The domestic order pipeline remains weak:
- The UK order balance sits at 0%, an improvement from last quarter’s -4%. However, domestic demand continues to be a concern, especially as manufacturers face increasing pressure to invest.
Exports: A mixed picture
Export orders continue to provide some support:
- This quarter’s export balance stands at +10%, though it reflects a slight dip from +11% in Q3.
- Looking ahead, manufacturers expect export growth to slow to +7% in Q1 2025. This slowdown could reflect the potential impact of US tariffs on critical subsectors like automotive.
Employment and Investment: Stability with Underlying Challenges
Employment and investment intentions remain steady:
- Employment has returned to growth after a slight decline in Q3.
- However, investment stability remains disappointing given the increasing need for technological advancements across the sector. Encouragingly, labour shortages appear to be easing, as vacancy figures return to their long-run averages.
Prices and Margins
While the wider trading environment suggests prices should be cooling, this has not yet materialised for manufacturers:
- UK prices have risen to +25% (a 5-point increase from last quarter).
- Export prices declined slightly to +21% (down 2 points). This may slow down any further reductions to the Bank of England’s base rate, currently at 4.75%.
The Economic Environment: Challenges and Opportunities
Manufacturers face a challenging economic backdrop heading into 2025. Rising costs from NIC changes, alongside adjustments to Capital Gains Tax and Inheritance Tax, are adding pressure. However, there are signs of potential opportunities:
- The Government’s Invest 2035 strategy and recent industrial initiatives highlight the central role of technology in closing the productivity gap.
- Microsoft UK CEO’s appointment as Chair of the Industrial Strategy Council signals the UK’s commitment to driving digitalisation and AI adoption over the next decade.
While these developments offer hope for future growth, they underscore a critical point: manufacturers must adapt to new technologies and automation to remain competitive.
FourJaw's Take: Productivity is Imperative
At FourJaw, we believe now is the time for manufacturers to focus on technologies that drive productivity and efficiency. Rising costs are an undeniable challenge, but manufacturers can offset some of these pressures by making better use of their existing resources. Solutions like manufacturing analytics can help businesses:
- Identify and reduce downtime.
- Improve overall equipment effectiveness (OEE).
- Streamline operations to maximise output without increasing costs.
The Manufacturing Outlook Q4 2024 report highlights the resilience of UK manufacturers. By leveraging smart technologies to enhance productivity, businesses can navigate rising costs and position themselves for sustainable growth in 2025 and beyond.
Source: Make UK’s Manufacturing Outlook Q4 2024 report.
