Manufacturers express positive outlook for 2022, despite reservations

Three-quarters of companies in the UK expect conditions in manufacturing to improve in 2022, according to a survey of senior executives conducted by Make UK and accountancy firm PwC.

Britain’s manufacturers are more positive about the growth outlook as they enter 2022, with greater confidence in the prospects for their own companies than either the global or UK economies, according to the survey, published today.

However, despite the positivity expressed, the overall picture remains clouded with conflicting issues and pressures demanding attention.

The '2022 Make UK/PwC Senior Executive' survey shows the scale of uncertainty facing business in the current turbulent global environment, with more than half of companies saying the biggest challenges facing them had changed in the last twelve months.

The optimism expressed by those polled is tempered by the ongoing fight to attract and retain talent, along with escalating input costs generally.

While two-thirds of companies see the UK as a competitive location for manufacturing, the same proportion also say that leaving the EU has definitely hampered their business. Meanwhile, COP 26 is acknowledged as having accelerated the drive to invest in ‘net zero’. In terms of manufacturing, one-third of companies are looking to reshore production, with a similar number intending to replace overseas suppliers with UK-based alternatives.

Despite these myriad challenges, the majority of manufacturers have weathered the storm of the last couple of years, with almost three-quarters of companies (73 per cent) now believing conditions for the sector will improve in 2022, with a similar proportion (73 per cent) believing the opportunities for their business outweigh the risks. To date, the sector appears to have seen little or no disruption from the latest Omicron variant to alter this confidence.

Furthermore, almost two-thirds (63 per cent) of companies felt the UK to be a competitive location for manufacturing, with just 13 per cent believing it to be an uncompetitive place to do business.

To take advantage of the opportunities, manufacturers say they are prioritising improving productivity and investment in their people, as well as new product development.

One year on from the UK finally leaving the EU, two-thirds of companies said that Brexit had moderately or significantly hampered their business, with over a half (56 per cent) fearing further negative impacts this year from customs delays due to increased import checks and required changes in product labelling.

Stephen Phipson, Make UK chief executive, said: “It’s testament to the strength of manufacturers that they have emerged from the turbulence of the last couple of years in such a relatively strong position. While clouds remain on the horizon in the form of rapidly escalating costs and access to key skills, the outlook is more positive for those that remain adaptable, agile and innovative.

“To build on this we now need to see a government fully committed to supporting the sector at home and overseas. This requires more than a 'Plan for Growth', but a broader industrial strategy that sets out a long-term vision for the economy and how we are going to achieve consistent economic growth across the whole country.”

Cara Haffey, PwC’s UK industrial manufacturing and automotive leader, added:

“Despite facing an unprecedented combination of continued Covid pressures, cost inflation and supply chain issues, our manufacturers are responding with an impressive amount of agility and resilience, which will stand them in good stead for the year ahead. They have learned valuable lessons about their supply chain vulnerabilities and the resilience needed to respond to unforeseen international or domestic risks, and are strengthening their businesses digitally as well as continuing to focus on talent and skills.

“We are particularly pleased by the breadth of net zero ambitions reflected in the report. Across the UK we’re seeing an increasing number of businesses underpin their environmental, social and governance strategies with practical applications to decarbonise their operations and ambitions to build out their green skill base through the recruitment of 'green' jobs, a move that has already been flagged as outperforming the UK sector average in our recent Green Jobs Barometer.”

The more positive outlook for growth is reflected across all major markets with 40 per cent of companies forecasting growth in exports to the United States, closely followed by the EU. Around a quarter (26 per cent) are looking for growth in Asia and around one in five to the Middle East (21 per cent). However, the EU market is also projected to see the biggest decrease in exports by 10 per cent of companies.

The survey also provides encouraging indicators on the strategies manufacturers are adopting to build resilience and agility into their business by looking at their supply chain, investing in people, innovation and green technologies.

Up-skilling or retaining existing staff was the biggest priority for around two thirds of companies (67 per cent), followed by new product development (60 per cent) and capital equipment (54 per cent), while almost four in five companies (78 per cent) envisage a significant or moderate increase in their productivity this year.

Skills and talent also dominated the risk factors companies were facing with access to labour seen as the biggest risk by almost two-thirds of companies (58 per cent), while almost nine in ten companies were not just worried about losing skills from their business but from the sector entirely. Encouragingly, despite the current financial challenges, almost half (45 per cent) of companies said they still planned to invest in apprenticeships in 2022.

The need to build resilience into business models has been highlighted by supply chain shortages and the survey shows around a third of companies (35 per cent) are planning to counter this by using British rather than international suppliers, while almost a third (31 per cent) said they were planning to re-locate some or, more of, their production back to the UK.

The survey also shows the increasing drive towards ‘net zero’ for manufacturers. Half of companies (49 per cent) said they plan to invest in green technologies or energy efficiency measures in 2022, with a third saying this investment has increased. A third also said the process to transition to ‘net zero’ had been accelerated by the recent COP 26 Conference.

Make UK has forecast that manufacturing grew +6.9 per cent in 2021 and is predicting growth in 2022 of +3.3 per cent. The survey of 228 companies was conducted between 8 and 29 November 2021.

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