UK manufacturing companies are feeling more upbeat about 2022 than might be expected after a challenging couple of years, according to the Manufacturing Outlook Report 2021/22 published by national audit, tax, advisory and risk firm Crowe.
Johnathan Dudley, Partner and National Head of Manufacturing at Crowe, said: “2021 was a year when so much challenged the manufacturing sector, as our survey results reveal.
“It was a year of shortages, inflated costs, demand outstripping the ability to supply and the growing realisation that at some point there will be a real stretch on working capital funding requirements.”
The report reveals that in the run up to the end of the year, demand drove both inflation and economic growth, as evidenced by the ONS statistics.
Turnover growth expectations among manufaturing companies were generally positive, noticeably more so than 2019 or 2020, despite 91 per cent of respondents saying that profits have been affected by the price and availability of raw materials.
The report highlights that recruiting and retaining staff with the right skillsets will be even more important this year as growth accelerates.
It also demonstrates a significant reduction in the influence of Brexit and trading tariffs, with the the number of respondents seeing this as a barrier more than halving in 2021.
2021 covered a period where trading arrangements with the EU carried a number of interim measures designed to reduce friction, many of which expired on 1 January 2022.
Johnathan said: “The full impact of the UK’s exit from the EU will only likely be felt as the interim arrangements end and trade agreements are finally put in place with various global trading partners.”
The results of this report come as no surprise to Stephen Morley, President of the Confederation of British Metalforming (CBM), who partnered with Crowe on the report.
“Having worked very closely with our members over the past two years, the findings reflect what we’ve been seeing ‘at the coalface’ of manufacturing. While we welcome the optimism of 74% of companies, I must put a note of caution against it.
“Supply chain issues are still a major concern and in particular semiconductors, with this likely to persist throughout the year. We’ve also seen shortages across several commodities and increased costs and delays of all goods coming into the UK.
“Thirdly, as we all know, turnover doesn’t necessarily mean more profit or indeed improved cashflow. This is reflected clearly with 92 per cent identifying that the profitability of their business has been affected by the cost of raw materials.
“Despite 60 per cent of companies stating that they believe government measures are adequate to get business back on track, we at CBM don’t share this optimism and strongly believe more needs to be done to support manufacturing, especially in terms of cashflow and capital investment – two areas we’ve been actively lobbying for support.
“It was pleasing to see the role of Trade Associations receive justifiable recognition in supporting companies and the CBM will continue to offer assistance throughout another tough year.
“I strongly believe that, with the right support, the long-term future of UK manufacturing can be bright. Our challenge is to ensure all our members and the rest of industry get through this period and emerge in a much stronger position to take advantage of the opportunities when they arrive.”
Johnathan sounded a note of caution over the unwinding of the Chancellor’s COVID-19 support packages.
“Growth will place demands on working capital requirements in the short term and investment capital needs in the longer term. Availability of credit for this growth on a continued basis will almost certainly not be as easy as it was during the pandemic. We are seeing this already.
“Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back lending has been replaced by the Recovery Loan Scheme (RLS) and it has been widely noted that this scheme is not getting traction with at least the ‘big four’ UK banks. Companies seeking lending for the future, have experienced difficulty sourcing this without repaying CBILS/Bounce Back in full as these loans are currently not transferrable.”
Johnathan pointed out that the Chancellor of the Exchequer clearly set a strategy in his autumn Budget, which relies on a strong economic recovery to fund the unprecedented level of government Coronavirus support, extended during the pandemic period.
“Growth expectations support this, however a successful economic recovery cannot alone be based on domestic demand and therefore stimulating and supporting UK export trade is vital both to our manufacturing base as well as to the general economy,” he said.
But echoing the Manufacturing Outlook Report of earlier years, Crowe’s survey has consistently revealed that businesses do not see the existing government support as being effective in supporting UK manufacturers. The 2021 survey is no different.
Johnathan concluded: “Post pandemic, the road will be bumpy, twisty and rough. Strong relationships identified with networks and trusted advisors need to be robust to achieve the levels of growth anticipated by the participants in this survey.”