Manufacturers more optimistic about UK as base of operations than a year ago

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Manufacturers are more optimistic than a year ago about the UK’s attractiveness as a country to locate operations but still fear it will lose ground to India, China and the US. 

Almost half of respondents also said they expected conditions in the sector to improve in 2024, more than double those forecasting a deterioration, according to an annual survey of 205 manufacturers by industry body Make UK and consultancy PwC. 

The findings, published on Monday, paint a more optimistic outlook from a sector that has been blighted in recent years by soaring costs, a tight labour market and supply chain disruption.  

Just over half of companies surveyed said the UK would be a competitive location for manufacturing activities in 2024, up from 31 per cent a year ago in the aftermath of the market chaos unleashed by radical budgetary plans by Liz Truss’s shortlived administration. 

The improved sentiment comes against a backdrop of relative political stability under Prime Minister Rishi Sunak accompanied by pro-business policies such as the decision to make permanent the “full expensing” tax break on investments.

A quarter of respondents believed the UK would become more competitive relative to Germany, France, Spain and Italy, outweighing the number who thought the opposite, the survey found. 

However, more than 40 per cent said the UK would lose ground in the race to compete with the lower-cost economies of India and China, with less than a fifth taking the contrary view.

Relative to the US, 38 per cent predicted the UK would become less competitive while 22 per cent forecast an improvement.

Costs, political instability, supply chain disruption and access to skilled labour were the biggest risks facing the sector, the survey found. 

While the services sector dominates the UK economy, the country is the world’s eighth-largest manufacturer by output, employing 2.6mn people, according to Make UK. 

Manufacturers remain concerned about the economic outlook, with those predicting a deterioration in both the UK and global economy outnumbering those forecasting improvements. 

A separate survey of UK chief financial officers by Deloitte found optimism had increased for the second consecutive quarter. Companies’ risk appetite rose to an 18-month high but remained below the long-term average, with cost reduction remaining the top priority, the study found. 

Deloitte’s chief UK economist Ian Stewart said the results might seem at odds with a contraction in the UK’s gross domestic product in the third quarter of 2023 and forecasts of sluggish growth in 2024.

But he added: “While the pace of growth softened in 2023, activity proved more resilient than expected, with unemployment at low levels, corporate profitability holding up and an absence of stress in financial markets. Crucially, inflation has fallen sharply since the summer, bolstering expectations of earlier interest rate reductions.”