UK manufacturers’ confidence rebounded in February to its highest level in a year, according to the latest Accenture / S&P Global UK Business Outlook, as expectations towards future activity picked up sharply from a record low in October.
At +53%, manufacturing sector firms expecting activity to increase over the next 12 months was the strongest recorded in over a year, and marked a significant uptick from the +24% registered in October 2022.
UK manufacturers were more confident than all of their European peers, with optimism more than double the average seen in Europe (+26%). Nonetheless, confidence also returned across European manufacturers, with Germany and Spain recovering from negative sentiment.
The boost to UK manufacturers’ expectations reflected growing confidence across nearly every manufacturing sector covered by the survey, such as textiles, food & drink and chemicals. The electrical sector was the only area to see a drop in expectations, amid ongoing supply concerns.
Fewer UK manufacturers predict an increase in their output prices, with the net balance falling to the lowest since October 2020 (+45%), though levels remain high. Manufacturers widely hoped that input cost inflation would not be as severe as last year, however wage inflation remains a key concern with salary pressures expected to persist at above average levels (+81%).
Despite this, the easing of price pressures and the improved demand outlook mean manufacturers are hopeful of boosting profits over the next 12 months. The net balance of firms expecting a rise in profit levels returned to positive levels (+27%), with manufacturers proving more optimistic than services companies in the UK.
Jobs forecasts strengthen and investment starts to recover
With business activity and profit forecasts improving, UK manufacturers signalled greater optimism towards hiring in February. The net balance of firms predicting a rise in employment more than tripled to +26%, after hitting a two-year low of +7% last October. Firms suggested that labour shortages will continue to pose an issue, although the proportion of businesses confident of finding skilled staff jumped from 32% to 42% in February.
Predictions for capital expenditure and research & development plans were less encouraging, but still showed signs of recovering. The net balance of manufacturers expecting an increase in capex spending stood at +10%, rising from -2% in October. At the same time, UK manufacturers expect R&D spending to rise (+10%), a more positive outlook than the services sector which continues to expect a fall (-5%).
Commenting on the findings, Maddie Walker, Industry X Lead for Accenture in the UK & Ireland, said: ”The clouds that have overshadowed the manufacturing sector in recent months finally seem to be lifting as confidence rebounds to its highest level in over a year. This outlook is not only positive, but even more significantly it’s profitable, as inflation continues to ease and supply challenges abate across most areas.
“The knock-on impacts will be positive for the UK, with more money in the back pocket for investment into new capabilities for the future. Continued focus on the right digital technologies and automation, alongside ensuring employees develop the skills to use them, will further bolster the sector’s resilience and attract foreign investment.”
To read similar articles, check out our Leadership channel.