Manufacturing output rebounds, still, UK outlook remains bleak

LONDON: The United Kingdom’s manufacturing output bounced back in the first three months of 2023, chiming with other measures of the economy that improved, but firms expect the sector to contract as inflationary pressures persist, a survey shows.

Trade body Make UK and accountants BDO said their quarterly gauge of manufacturing output rose to plus 21 in the first quarter from plus five, the highest balance level since early last year, when it rose to plus 24.

Manufacturers expect an output balance of plus 32% in the next three months.

However, Fhaheen Khan, senior economist at Make UK, said the sector still faces a tough road ahead.

“One swallow doesn’t make a summer, and it is far too early to say the worst has passed, given the significant challenges the economy faces,” Khan said.

Domestic and export prices rose slightly from the previous quarter, both with balances of plus 52%.

There was also a big jump in total orders, with UK orders increasing to plus 20% from plus 2%, while overseas orders rose to plus 12% from minus 6% in the final quarter of 2022.

Separate purchasing managers’ index data, published earlier this month, showed UK manufacturing output contracted in February at the slowest pace since July.

The Make UK/BDO survey’s measure of investment intentions showed a jump from minus 5% to plus 14%, possibly reflecting factories’ intention to take advantage of the super-deduction scheme – tax incentive designed to encourage investment in new assets and equipment – which is expiring at the end of March.

Finance minister Jeremy Hunt in his budget last week said he was replacing the super-deduction with a less generous investment incentive that allows companies to offset 100% of their capital expenditure against profits for three years.

Business groups and economists in the United Kingdom have criticised uncertainty around the government’s corporate tax plans in recent years, which they said contributed to poor rates of business investment. — Reuters

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