Back in January 2023 Joe Bush quizzed me on my thoughts around international trade and the UK Manufacturing sector. The conversation covered the challenges to exports and international trade, regional differences and then moved onto the rise of digital trade and the future outlook. Some 18 months on and with a new government in place, now is a good time to reflect on how the UK’s manufacturers are faring on the world stage and to update you on these topics.
The recently published S&P’s Purchasing Managers Index (PMI) showed that the UK manufacturing sector posted a score of 52.5 for August 2024, its highest score since July 2022.
Manufacturing production increased for the fourth successive month, with rises in new orders and new business reported. On the face of it a very positive result but delve deeper and we can see that most of this increase was driven by domestic demand, as new export orders decreased for the 31st consecutive month.
S&P went onto explain that UK manufacturers are experiencing difficulties in securing new contract wins overseas due to weaker demand from Europe, a slowdown in mainland China, freight delays, competitiveness issues, high shipping costs, global conflicts and political uncertainty.
The Red Sea crisis is having a specific impact on the sector as makers are seeing longer lead/delivery times and higher shipping costs with experts warning that this conflict could last well into 2025. Despite these issues the UK was one of the few countries globally to post a positive score, joining countries such as India, China and South Korea. In contrast Germany posted 42.4 and France 43.9 for August!
Make UK’s 2024 Regional Manufacturing Outlook was published just over a month ago and shows that the ‘overwhelming majority of UK regions and nations covered in this year’s Regional Outlook report… post positive numbers across output, orders, investment and employment’. Very encouraging indeed, but there are big discrepancies in performance across the UK.
The new government is settling in, and the word of the moment is ‘Growth‘. The reality is that international trade must fuel this growth and UK manufacturers will undoubtedly grasp the opportunities, but the sector needs the government to play its part in delivering genuine barrier removing trade deals with countries such as India and the Gulf Cooperation Council (GCC). The UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is likely before the year end and is another positive move. My own view is that CPTPP will only deliver key benefits in the medium- to long-term.
In the shorter term the UK’s trading relationship with our largest trading partner, the EU, must be improved. This is a huge challenge for the government but one we must address if the growth is to be delivered. Alongside the Europe ‘reset’ the government is promising a long called for UK Industrial Strategy and I’m encouraged that it promises an industrial policy that will be “fully aligned with our trade strategy” and will be centred on attracting greater inward overseas investment ahead of this month’s International Investment Summit. We at the Chartered Institute will work alongside government and the manufacturing sector in support of these aims.
It is interesting that as I look back to the January 2023 article, some of the changes that we predicted have not yet happened. There is still no free trade agreement with India for example and although trade is becoming more digital, the impacts on traders and the benefits are not yet that apparent. It is vital that businesses don’t become complacent. Although some changes have been delayed many more are coming in the next two years.
As I was quoted previously it is still: “important that the people within businesses that deal with international trade, stay informed, understand the changes that are happening and take advantage of them by becoming an early adopter and getting involved in digital trade scheme pilots; they will ultimately prove very beneficial to the business in the long-term”!
The manufacturing sector remains vital to UK plc. The sector contributed £217bn in output to the economy last year, supporting 2.6 million jobs. Although we hear so much about our export of services it is worth reminding ourselves that goods account for 40% of the UK’s total exports! So international trade is as important as ever. Despite the uncertainties and headwinds, the manufacturing sector is well placed to deliver for us again.
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