Britain’s manufacturers have seen a sharp rebound in activity in the third quarter of the year, with signs that pent up investment demand has been released, while recruitment intentions have also risen sharply.
However, the inability to fill the current 46,000 vacancies in manufacturing is now costing the sector £4bn in lost output every year.
According to the Make UK/BDO Q3 Manufacturing Outlook survey, all indicators in the survey have improved following a series of weak quarters, with export growth in particular leading to greater demand.
Furthermore, the United States has recovered its position as the second most favoured market for growth prospects, having dropped out of the top three global blocs in Q2 for the first time in the history of the survey in response to tariff uncertainty earlier in the year.
However, despite more positive news, the survey also shows that almost three quarters of companies (70%) expect further increases in costs in the forthcoming Budget at a time when a similar number (68%) have said their costs have already increased more than expected in the last six months. As a result, more than half of companies (58%) have already raised prices this year, while a similar number (53%) intend to do so in the next six months, highlighting that inflationary pressures for manufacturers remain in the pipeline.
Despite the sharp rebound in activity this quarter Make UK also cautioned against the survey kick starting a period of stronger trading, as growth forecasts for the sector remain weak with output still forecast to fall by -0.1% this year and -0.6% in 2026.
Commenting, Stephen Phipson, Chief Executive at Make UK, said: “After a period of considerable uncertainty in global markets, these figures are an encouraging sign that manufacturers’ confidence is improving and, more importantly, being translated into growth and investment. However, one swallow doesn’t make a summer, and with UK and European markets in particular remaining anaemic it wouldn’t take much to knock prospects for further growth.
“It’s therefore essential that manufacturers’ fears of further costs as a result of the forthcoming Budget aren’t realised. Government has made great strides in backing manufacturing with its industrial strategy and it must avoid imposing any further cost burdens which will hamper its number one mission of boosting economic growth.”
Richard Austin, Head of Manufacturing at BDO, said: “'These latest findings offer a glimmer of hope for the manufacturing sector. Despite what has been a relentless year by all accounts, manufacturers have somehow boosted their output and doubled down on their investments to match.
“But this reprieve could be short lived. The spectre of the upcoming Budget looms and the sector will need robust signalling from the government that their investments are worth the risk. All eyes will be on the Autumn Budget and it’s vital that the government seizes this opportunity to prove their commitment to the sector and to the promises made in the Industrial Strategy.
According to the Manufacturing Outlook survey, the balance on output increased to +25% from +9% in the last quarter, with total orders following a similar pattern up to 16% from -2% in Q2. Export orders have resumed the pattern of driving growth, increasing to +23% from +7%, while UK orders recovered to +12% from -1% last quarter.
Recruitment intentions improved significantly to +15% from +1% (-3% in Q1) while investment intentions increased sharply to +25% from +2%. This would indicate that pent up investment demand has been released given the balance in Q1 was similarly weak to Q2 at just +5%. The survey provides encouraging evidence of where investment is being spent with almost three quarters of companies (70%) saying they plan to invest in technology and automation.
