UK manufacturing sector doubles growth forecast amid economic recovery

·Contributor
·3-min read
An employee works on a Mini at BMW's plant in Oxford, southern England
Make UK said that assuming the coronavirus vaccine rollout programme continues at pace and its effectiveness is strong, manufacturing output will return to pre-pandemic levels by the end of 2022. This is earlier than previous forecasts had suggested. Photo: Reuters/Suzanne Plunkett

The UK’s manufacturing growth forecast for 2021 has been upgraded from 3.9% to 7.8% as Britain continues to recover from the onslaught of the coronavirus pandemic.

According to a major survey published today by Make UK and business advisory firm BDO, the sector is set to recover a significant amount of last year’s 10% decline, and outpace the growth of the economy overall (7.5%).

This growth is based on a surge in both domestic and overseas orders which has increased the hiring of workers in the industry, which climbed from -6% to 20%.

Make UK said that assuming the coronavirus vaccine rollout programme continues at pace and its effectiveness is strong, manufacturing output will return to pre-pandemic levels by the end of 2022. This is earlier than previous forecasts had suggested.

As of Friday, almost 41 million people in the UK had received their first dose of the vaccine, with nearly 30 million having their second jab, government data revealed.

According to the survey of 276 companies, which was conducted between 5 and 26 May, the balance on output improved to 36% from 9% in the first quarter of the year. This was the highest balance in its 30 year history. 

Looking forward, output is expected to continue to improve with a forecast balance of 46% in Q3, which would be another record high.

Chart: Make UK manufacturing outlook survey
Chart: Make UK manufacturing outlook survey

Total orders also improved to 34% from 9%, with growth forecast to continue in the third quarter with a balance of 36%. In contrast to the last quarter where there was a substantial divergence between domestic and export orders, both indicators showed significant growth with domestic orders increasing from 6% to 27%, while export orders recovered from a negative balance of -8% to 22%.

Investment intentions also turned positive for the first time since the first quarter of 2020, the survey showed, suggesting that the introduction of the temporary super-deduction tax in the budget in March is having some impact.

However, Make UK stressed that the figures reflect 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.

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“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 off firmly in the second half of the year,” Fhaheen Khan, Senior Economist at Make UK, said.

“However...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.”

Richard Austin, Head of Manufacturing at BDO, said: “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.”

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