19 May 2022

Manufacturing sector remains resilient and adaptable in the face of uncertainty

Make UK

Until a few weeks ago it seemed a near certainty that the Bank of England would be raising interest rates this week in response to the increasing inflation everywhere you look in the economy. Make UK chief executive, Stephen Phipson, explains further.

According to the latest Q4 Make UK survey record numbers of manufacturers are raising prices in the face of strong inflationary pressures which show little, if any, sign of abating. The balance on UK prices rose from a balance of +50% in Q3 to +52% in Q4 with an expected increase to +58% in the next quarter, these are the highest balances in the survey’s history.  And, to give an indication of just how sharply inflation has bitten and, how manufacturers have responded, the equivalent balance in Q4 2019 before the onset of the pandemic and leaving the EU was just +5%. A similar picture exists for export prices where the balance rose from +43% to +51% and is expected to remain at that level in the next quarter. By contrast, the balance in Q4 2019 was -7% showing that just two years ago more manufacturers were cutting prices on exports than raising them. The reasons for companies having to raise their prices are well documented and have provided a potent cocktail of factors in the last couple of years. Supply chain shortages of both raw materials and components, increased transport and energy costs not to mention the rapid rebound in demand from the brutal fall in output in the Spring and early Summer of 2020. For the moment these pressures show no signs of abating and anecdotal evidence from companies increasing their prices by 10% with no kickback suggest that such price increases are becoming built in. As we leave 2021 and enter 2022 the question for policymakers is how to deal with such pressures while the economic outlook remains so uncertain given the emergence of another variant which might, in the short term, do the Bank of England’s job by slowing growth. One thing is certain, however, is that such uncertainty will remain for quite sometime providing manufacturers with a continued challenge. However, if the last couple of years has taught us anything it is quite how resilient and adaptable the manufacturing sector is. As we leave one year behind and begin another let’s hope for brighter times ahead.