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Almost three-quarters (70%) of manufacturers have seen their costs increase by up to a fifth in the last year, according to the new report by manufacturers’ organisation Make UK and business advisory firm BDO, while 8% have seen costs increase by up to half.
While output and order levels remain positive, and recruitment and investment intentions are stable, the mood has “darkened markedly” since the last survey in the third quarter, Make UK said. In that poll, business confidence was at its highest level in a decade, and almost six in 10 companies (58%) saw a brighter economic outlook under the new government.
In the new survey, almost 86% of companies said their business costs will increase as a result of employment reforms, with 44% saying the increase will be ‘significant’.
“With the Budget set to add substantial extra business costs, in particular the changes to National Insurance contributions, Make UK has cut its growth forecasts, with manufacturing contracting by -0.2% this year and growing by just 0.7% in 2025,” the organisation said.
In response, it urged the government to look at measures that might help alleviate the impact of rising costs, such as reforms to business rates and current incentives to decarbonise.
“Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis, which has brought a sharp dip in their confidence. While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance contributions potentially the straw that might break the camel’s back for some,” said Fhaheen Khan, senior economist at Make UK.
“There is now an urgent need for government to look at other measures, which might mitigate the impact of the rocketing costs that businesses are now facing.”
Richard Austin, head of manufacturing at BDO, said: “While manufacturers have welcomed the government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand.
“An overlay of a turbulent geopolitical landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever, to maintain stability and offer opportunities for growth in the sector.”
Despite concerns about the drop in business confidence, Make UK welcomed the experience and expertise held by members of the new Industrial Strategy Advisory Council, announced on Tuesday (17 December). Members will include Rolls-Royce chair Dame Anita Frew and Greg Jackson CBE, CEO of Octopus Energy.
Stephen Phipson, chief executive of Make UK, said: “This marks the achievement of a very important milestone in introduction of a formal modern industrial strategy, which is essential to spur the step change in investment and productivity the economy needs. We welcome the appointment of individuals with experience and expertise who will drive activity.
“Following on from the consultation and the announcement of the Advisory Council, it’s now vital that government puts its full shoulder to the wheel to launch a formal long term strategy, which has the buy-in of every department.”
The recent survey of 303 companies was carried out between 28 October and 27 November.
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