Following the release of the latest UK Manufacturing PMI (3 October), Richard Powell, partner at MHA, see’s little reason for sector optimism as rising inflation and a dramatic downturn of the pound pile further pressure on manufacturer’s margins and their ability to come through economic turbulence unscathed:
“UK manufacturers have been hit hard in September. Despite a small uplift in this month’s PMI Index, dramatic increases in inflation, coupled with the plummeting value of the pound and prohibitive energy prices, have put increasing pressure on business margins and eroded fragile confidence in the sector as the economy heads towards what seems to be an inevitable recession.
“The Chancellor’s mini-budget provided a few reasons for optimism, such as the welcomed extension to the £1 million Annual Investment Allowance and scrapping of planned increase in Corporation Tax. The 6-month energy price cap on the wholesale cost of gas and electricity starting from 1 October will also bring much-needed relief for manufacturers, however the limited time-scale of the scheme will do little to shield businesses from crippling energy costs beyond April 2023.
“While the majority of the sector continues to feel the economic strain, the weakening pound may present a window of opportunity for businesses exporting overseas, particularly to the United States, to benefit commercially and offset broader financial burdens, however the pound’s volatility makes it impossible to plan for the long haul.
“The sector desperately needs the government to introduce immediate measures that will bring short term sector stability, alongside new incentives for greater business investment in areas such as green technology and AI. This must be underpinned by much-needed financial support such as government-support loans, like those seen during the pandemic, to give manufacturers the best chance of coming through coming economic storm intact.”
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