What's Happening?
The Make UK/BDO Q3 Manufacturing Outlook survey indicates a positive shift in UK manufacturing, with the net balance on output rising to +25% from +9% in the previous quarter. Export and UK orders have seen significant increases, suggesting a release of pent-up investment demand. Manufacturers are also showing increased intentions to recruit, although the sector faces challenges with 46,000 vacancies costing firms £4 billion annually in lost output. Despite these improvements, growth forecasts remain weak, with output expected to decrease by 0.1% in 2025 and 0.6% in 2026.
Why It's Important?
The rebound in manufacturing is a crucial indicator of economic recovery, potentially leading to increased investment and job creation. However, the sector's inability to fill vacancies and rising costs pose significant challenges. With 68% of manufacturers experiencing higher-than-expected costs, many are increasing prices, which could impact consumer spending and inflation. The anticipated cost increases from the upcoming Budget may further pressure manufacturers to raise prices, affecting the broader economy.
What's Next?
Manufacturers are likely to continue facing challenges related to recruitment and cost management. The sector's response to the November Budget will be critical, as further cost increases could lead to more price hikes. Stakeholders, including policymakers and industry leaders, may need to address these issues to sustain growth and prevent further economic strain.
Beyond the Headlines
The manufacturing sector's struggles with vacancies highlight broader issues in the labor market, potentially requiring policy interventions to improve workforce skills and availability. Additionally, the rising costs and price hikes could lead to inflationary pressures, necessitating careful economic management to balance growth and consumer affordability.
