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UK manufacturers stave off recession despite inflationary pressures

Britain’s manufacturers have seen a rebound in activity in the first quarter of the year, staving off fears of a recession in the sector, although strong inflationary pressures are still having a major impact.

A report from Make UK shows a marked improvement in the sector compared to the final quarter of 2022. The figures echo gradual improvements seen in other data regarding the state of the UK and European manufacturing sector.

The improvement is being driven by strong demand in the electronics and mechanical equipment sectors, with the balance of orders in the electronics sector extremely strong, the Manufacturing Outlook report said.

This could be due to several factors, including companies investing in digitalisation and extra capacity to counter labour shortages or, to take advantage of the final period of the super deduction scheme before it ends this month. Demand for electronics goods is especially strong from overseas, in particular the EU.

The report also showed that the sector is now in its ninth consecutive quarter of elevated price metrics, where manufacturers have consistently raised both their UK prices and export prices “far beyond” the norm.

Fhaheen Khan, a senior economist at Make UK, said: “Manufacturers have seen a rebound at the start of the year as conditions have improved in their major markets and, business confidence has improved. However, one swallow doesn’t make a summer and it is far too early to say the worst has passed given the significant challenges the economy faces.”

In October, the Office for National Statistics said that the number of UK manufacturing businesses shrank by 10 per cent in 2021, while turnover also fell by 9.2 per cent.

The decrease in the number of companies in the sector was attributed to a decreasing number of orders which saw manufacturers cut back on their production.

Richard Austin, manufacturing head at accountancy firm BDO, said: “The results of our research with Make UK illuminates that, despite glimmers of good news such as strong demand for electronics and mechanical equipment, inflationary pressures are still very evident for UK manufacturers with increased costs still being passed on.

“The data shows conflicting upward and downward indicators – potentially an industry at a crossroads. It will be fascinating to see which path will be followed over the coming months.”

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