The UK manufacturing sector has faced significant challenges over the past few years. The twin shocks of Covid-19 and Brexit have caused substantial disruption to supply chains, increasing raw material costs and depressing business sentiment. These have been tough times, but the sector has also proven resilient, especially as the UK still has some of the most innovative and agile producers in the world.
A trusted barometer for business sentiment
The BCC’s Quarterly Economic Survey, run by its Insights Unit, is the UK’s largest and longest running independent business sentiment survey. It was started in 1989, and because it uses a consistent question set, can examine economic trends in near real time across five decades. Our latest survey, conducted across August and September 2024, showed volatile conditions persist in the manufacturing sector.
Sales and exports under pressure
Many manufacturers are still not reporting increased sales, with only 31% seeing a rise in domestic sales over the past three months – down from 37% in Q2. Export sales have been consistently lower than domestic since the pandemic, but these have also fallen further; just 26% of manufacturers saw a rise in overseas sales in Q3, down from 32% in Q2.
Investment has remained a major challenge. Only 28% of manufacturing firms reported an increase in their outlay on plant and machinery in the last three months, compared to 33% in Q2.
Taxation has emerged as the main concern for manufacturers, with more than half (51%) citing it as their biggest issue, a significant leap from 38% in Q2. Concerns about other external factors, meanwhile, continues to ease – with 42% saying they are worried about inflation compared to 45% in Q2 and 86% in Q2 2022.
AI adoption lags behind in manufacturing
Alongside the Quarterly Economic Survey, the BCC also carries out four thematic surveys every year, to explore specific issues in more detail. In our 2024 Workforce Survey, we asked businesses about their adoption of AI technology.
This found manufacturers are lagging behind when it comes to take up. While 25% of businesses overall reported actively adopting AI, this dropped to just 19% for production. They cited several barriers to adoption, including its relevance, cost, and potential threats to jobs and security.
Wider factors have also played a role in holding investment back. High interest rates, the cost of new technology, and ongoing uncertainty about the future have put the brakes on financial decisions for many.
Skills shortages strain workforce and productivity
Manufacturers are also experiencing significant skills shortages with around three quarters consistently reporting recruitment difficulties. This has been compounded by an outflow of skilled workers due to the Covid-19 pandemic and Brexit. When asked about the impact of skills shortages, 74% of manufacturers said the main issue was increased workloads for other staff, while 56% cited reduced activity or output.
Building confidence for the future
It is clear the last few years have been challenging for the UK’s manufacturers. To restore confidence and encourage growth, the government must focus on implementing the right policies. A more supportive tax regime, improved access to EU markets, and a clear industrial strategy are essential to give manufacturers the certainty and confidence to invest in the future.
Better communication from Government is also needed. The decision to make the Full Expensing corporation tax allowance permanent, announced in Autumn 2023, was aimed at stimulating business investment. But our research shows that, while one in five manufacturers have invested because of it, a big proportion are still unaware of its existence, or do not have assets that qualify.
The BCC’s Insights Unit seeks to provide the most up-to-date picture of UK business conditions, across all sectors and sizes, to better inform decision making by governments, policy advisors and leaders.
For more information visit the BCC’s Insights Unit page or contact the Research team.
