The UK manufacturing sector has begun its long road to recovery after improvements in output and orders in the last three months.
This is according to a new survey published by Make UK and business advisory firm BDO.
According to the Make UK/BDO Manufacturing Outlook Q3 survey, the balances on output improved to -36% from -56% in the last quarter.
UK and export orders also improved from similarly historic lows to -36% and -34% respectively.
Companies expect the prospects for industry to continue moving in an upward direction with the balance forecast for output for the next three months improving to -7%. Whilst still negative, this would represent a significant improvement.
Despite the improvements in output and orders, the major negative in the survey was the balance on investment intentions falling to -32% from -26% in the last quarter. Whilst not reaching the levels of cutbacks seen during the financial crisis as yet, the trend downwards is following a similar pattern to that seen at the time.
By way of an indicator as to how far investment has been cut back this year the balance in the first quarter was +20% as industry bathed in what seemed greater political certainty following the general election. The biggest cutbacks were in Yorkshire & Humber, Wales and Scotland.
Stephen Phipson, chief executive at Make UK, commented: “Manufacturing has begun to climb away from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back towards normal trading conditions, with talk of a V shaped recovery nothing more than fanciful.
“Having emerged from three years of political uncertainty at the end of last year, increasing talk of a final ‘no deal’ exit from the EU would be a final nail in the coffin for many companies. If we are to avoid this and, the avalanche of job losses that would follow in already hard hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.”
Make UK also warned that given the uncertainty surrounding the Brexit negotiations and the very real possibility of no deal, the combination of that outcome with the continued impact of the pandemic could cause further damage to investment prospects in the latter part of the year.
By sector there were marked differences, with basic metals reporting a shockingly bad balance of -75% as demand for steel dried up from the automotive and aerospace sectors.
By contrast other sectors such as electronics, machinery equipment and electrical equipment all improved in line with the UK averages. The forecasts for the next three months showed a continued improvement.
Despite the improvement in business conditions since the start of the crisis, the employment balance weakened since the last quarter, falling to -29% from -22%. This would indicate that manufacturers are cutting back on staff, though whether it means companies are adapting to the new environment by improving productivity with fewer staff remains to be seen.
In line with other recent economic indicators of an improvement in business conditions almost a fifth of companies are now at full operating levels (17.6%) while a further 28% are operating between three quarters and full capacity. Looking forward over a quarter (27%) expect to be at full capacity at the start of 2021 while a further third (35.4%) expect to be between three quarters and full capacity.
Given the impact on the sector Make UK is now forecasting that manufacturing output will fall by almost 11% (10.9%) while it has downgraded its forecast for recovery in 2021 by more than a full percentage point from 6.2% to 5.1%. GDP is forecast to fall by -8.5% this year before recovering by +10.1% in 2021.