Mood shifts as manufacturer confidence plummets

The Manufacturing Outlook Q4 survey - carried out between 28 October and 27 November – showed business confidence dipping at the sharpest rate since the pandemic. Despite output and employment on the rise, and investment levels remaining stable, overall optimism fell for the first time since Q4 2023. 

Increased costs are fingered as the main culprits for the decline, compounded by further cost rises ahead due to the recent Labour budget (October 30). According to the survey, 70 per cent of manufacturers have seen costs increase by up to a fifth in the last year, while almost one in ten (8 per cent) saw costs rise by up to a half. Meanwhile, 86 per cent believe their business costs will increase specifically due to new employment reforms – including an increase in Employer National Insurance - with 44 per cent saying the increase will be ‘significant’.

“Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence,” said Fhaheen Khan, senior economist at Make UK.

“While overall conditions had begun to gradually improve during the year, the budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some. There is now an urgent need for Government to look at other measures which might mitigate the impact of the rocketing costs that businesses are now facing.” 

Overall, Make UK predicts that manufacturing will contract by 0.2 per cent in 2024 - down from a forecast of +0.5 per cent in the last quarter - before growing by 0.7 per cent in 2025. GDP is forecast to grow by 0.7 per cent in 2024 and 1.4 per cent in 2025.

“While manufacturers have welcomed the Government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand,” said Richard Austin, head of Manufacturing at BDO.

“An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever to maintain stability and offer opportunities for growth in the sector.”