Manufacturing: Light on the horizon

Thursday September 28, 2023

Cause for optimism as industry celebrates National Manufacturing Day

Restructuring Advisory Partner, Allan Kelly reviews the state of play in the manufacturing sector ahead of the publication of our latest report.

The long-admired phrase ‘it’s always darkest before the dawn’ has held true for many sectors in 2023, with few clear as to when that ‘dawn’ might arrive. For the manufacturing sector, the much-anticipated ray of light may have arrived just in time for Make UK’s National Manufacturing Day today (28th September).

The manufacturing industry has endured an abject few years, with industry output having declined for 13 consecutive months, reaching a 39-month low in August, according to the S&P / CIPS UK manufacturing PMI. While we wait to see if output falls further in September’s figures, there appear to be signs that the tide is due to turn, if not already turning.

Last week’s inflation figures – marking a second consecutive reduction against market forecasts – suggest that input costs are heading in the right direction, albeit slowly. The figures played a significant role in the Bank of England’s decision to pause its run of hikes to the base rate. Again, we should strike a cautious tone here though, with a large proportion of the Bank’s monetary policy committee favouring a further increase.

Both developments should have a knock-on effect, boosting what is admittedly fragile consumer confidence and enabling both consumers and businesses to borrow and invest with a degree of greater certainty that the cost of doing so won’t increase further.

These reasons for optimism are reflective of the forward-looking mood within the industry. You could be forgiven for expecting a more pessimistic outlook, however, the findings of our upcoming report into the sector – due to be published next month – indicate a sector brimming with bullish ambition for the year ahead. Indeed, the findings are in stark contrast with our 2022 manufacturing report – where one in five firms suggested they feared going to the wall.

Those concerns were well founded. The first half of this year saw a 22% year-on-year increase in manufacturing administrations, according to Shakespeare Martineau data, with the sector behind only its retail peers in terms of volumes of business failures. Our belief on the back of the survey responses, though, is that the majority of firms have come to understand the challenges they face and now have plans in place to mitigate them this winter.

That said, energy prices will remain high even though they are suggested to fall slightly from current levels however this will also depend on seasonality. Likewise, wage inflation is a stickier challenge and it will take some time for significant temperance in material costs to take place.

For any firms recognising potential cracks in their operations, National Manufacturing Day is as good a time to act as any – developing a recovery plan that will enable them to ride the uptick in demand that the industry is predicting in the coming months.

Related team

Allan Kelly

Allan Kelly

Allan Kelly

  • Partner
  • Restructuring Advisory
  • Newcastle, Sunderland