UK Manufacturing sees positive outlook for 2022

UK manufacturers are feeling positive about the growth outlook for 2022, according to the 2022 Make UK/PwC Senior Executive survey, with greater confidence in either global or UK economies.

Key findings included:

• Three-quarters of companies expect conditions in manufacturing to improve
• Two-thirds of companies see the UK as a competitive location for manufacturing - but as many say leaving the EU has hampered their business
• Increased input costs and access to skills are the biggest risks for companies
• Third of companies looking to re-shore production, a similar number to replace overseas suppliers with UK based

The positive news is that demand is set to stay strong, forecasts predict 6 per cent growth in 2022, and the outlook for growth in, and exports to, all the major markets is positive.

Optimism is also tempered by on-going post-Brexit issues, escalating inflationary pressures and access to, as well as retaining, talent and key skills in the manufacturing and supply chain are by far the biggest issues companies are having to address, according to industry body Make UK, which represents 20,000 manufacturing firms.

Most manufacturers have weathered the storm of the last couple of years with almost three-quarters of companies (73 per cent) now believing conditions for the sector will improve in 2022, with the same number (73 per cent) believing the opportunities for their business outweigh the risks. To date, the sector appears to have seen little or no disruption from the latest Omicron variant to alter this confidence.

The other positive story is that UK manufacturers are to rapidly step up their move towards net zero, around a third of manufacturers attribute COP26 to a move to accelerate their plans to transition to net zero. In addition, around two-thirds of manufacturers say that in 2022 their business will focus more on net zero - with half of the companies saying they will invest in green technologies and energy efficiency measures.

These investments are an illustration that manufacturing and engineering will be part of the solution to climate change. However, the next years will also bring a continuation of the challenges that manufacturing businesses have been facing over the last year, namely access to talent and supply chain disruption, and continued post Brexit issues.

The biggest risk to companies’ performance was access to domestic labour and skills, the top indicator in this survey. To meet this, two-thirds of companies say that upskilling or retaining existing staff is their main priority, almost half say they plan to invest in apprenticeships in the next 12 months.

The overwhelming majority (87 per cent) of companies reported they were concerned about skills leaving their business, with 86 per cent concerned skills will be lost from the sector entirely. The latest national statistics report that 39 per cent of vacancies in manufacturing remain hard to fill owing to skills shortages, especially within the high-tech and electronics sector.

Talent management was a key area with companies experiencing problems in;

• Poor hiring strategies
• Inexperience with technology
• Ineffective leadership
• Employee turnover

Many were now focused on improving the talent management process for each employee, starting with hiring. Areas of investment included;

Planning: Determining what kind of employee is required.

Sourcing: Looking for top talent through different channels including specialist recruitment partners, job boards, etc.

Screening/Interviewing: Developing quicker and more robust interviewing processes such as Competency based Interviews.

Onboarding: The new hire goes through orientation to get a feel for the company.

Training: Managers and other employees train the employee, so they understand their job duties.

Relationship management: Developing the employee’s skills (performance reviews, day-to-day feedback, etc.)

The second biggest risk to companies was seen as significant upward pressure on input costs. While some factors impacting on this are global, such as increased energy and shipping costs, other factors are self-imposed, such as the increases in National Insurance and Corporation Tax.

Finally, optimism for a post-Covid manufacturing recovery was being diminished by ongoing post-Brexit issues, with two-thirds of companies fearing that customs delays and new regulatory red tape will worsen supply chain issues.

The study polled 228 leaders of manufacturing firms for their opinions on how Brexit is impacting their business and the industry.

Two-thirds of the leaders surveyed said Brexit had moderately or significantly hampered their business, and more than 50 per cent thought they were likely to suffer additional damage in 2022 over customs delays created by import checks and changes in product labelling.

This confirms that Brexit disruption remains a top concern for industry chiefs in 2022. The main concerns raised in the study include customs delays, the extra cost of meeting different regulatory requirements in the UK and Europe, and limited access to EU workers.

This comes in the wake of a poor year for British industry. The Office for National Statistics (ONS) figures show that in the first ten months of 2021, exports from the UK were down 14 per cent compared to 2019, a loss of more than £40bn, and UK trade with the EU was down 13 per cent, a loss of about £18bn.

Commenting, Make UK Chief Executive, Stephen Phipson, said:

“It’s testament to the strength of manufacturers that they have emerged from the turbulence of the last couple of years in such a relatively strong position. While clouds remain on the horizon in the form of rapidly escalating costs and access to key skills, the outlook is more positive for those that remain adaptable, agile, and innovative.”

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