British manufacturing’s positive growth in the first half of 2023 was more of a “temporary blip” than a running theme, according to a report released by Make UK and BDO today.
The Bank of England's repeated interest rate hikes appear to be the main culprits, with efforts to curb runaway inflation coming at the expense of manufacturing output.
The research stated: “As it stands, it appears that the buoyant activity of the last six months may have been but a temporary blip as rising interest rates begin to take a toll on economic activity, with manufacturers' recruitment plans ceasing and orders slowing at home and abroad.”
Output on balance has slowed to its lowest level since 2020 alongside order books which have contracted for the first time since the pandemic, noted the report.
UK orders reported a negative balance of -3%, down sharply from the +15% recorded in the second quarter of the year.
The electronics subsector remains a bright spot for UK manufacturing, with output forecast for 2023 being revised upwards by a percentage point, marking 5.6% of growth expected this year.
Pharmaceuticals also remains buoyant, with 7% growth expected for the full year.
Food and drink, which is the UK’s largest manufacturing subsector comprising 18.5% of output, is expected to show -0.2% of negative growth for the full year, while basic metals and mechanical equipment are expected to decline 1.4% and 2.9% respectively.
Nonetheless, manufacturers remain optimistic about a strong finish to the year, although their efforts to reduce hiring suggest they have taken up a defensive position.
“The unexpected slowdown appears to have had very little impact on business optimism and expectations for the future… In the latest survey manufacturers predict that the final quarter of this year will post strong results,” noted the report.