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1、28/02/22MAKE UK MANUFACTURING MONITOR#BackingManufacturing This is EngineeringIntroductionThis is Make UKs first edition of Manufacturing Monitor in 2022,an adaptive report based on the most pressing issues for UK manufacturers at the time of publication.Its inception as a regular publication came i

2、n response to the pandemic,where fast-moving intelligence was required to best understand the challenges the industry was facing on a month-to-month basis,capturing and presenting issues that could not be properly elicited by medium to long term outlook reporting.This first edition of the year comes

3、 at a critical time for manufacturing in the UK,a juxtaposition between soaring domestic and international demand for British manufactured goods and extreme supply-side limitations that are seeing manufacturers struggle to maintain production capacity.Following approximately two years of economic su

4、ppression,its now,in this so-called recovery period,that UK manufacturers are eager to make the most of their swelling order books to recoup as much of the lost value as possible.Manufacturing Monitor 28/02/22As almost all pandemic-related Government support is progressively withdrawn from the indus

5、try,and even with a new prospective hurdle erected by way of the planned National Insurance hike,manufacturers are enduring a cash and margins squeeze beyond anything theyve faced in the past decade,let alone the last two years.This edition of Manufacturing Monitor will detail,in brief,the most pres

6、sing challenges to UK manufacturers operations at the point of publication,covering topics on costs,investment,employment and customs.Key findingsof companies say the National Insurance rise will have a moderate or significant impact on recruitmentof companies say they will certainly or likely pass

7、the costs of the National insurance hike onto customers72%of manufacturers state they are already pricing-in energy costs into their final productthink it will take over a year for energy prices to settle,with 23%expecting their costs not to settle for at least two years.39%49%57%47%60%of manufactur

8、ers have seen an increase in retirement or reduced hours in the wake of the pandemic.of businesses have adjusted business practices in the face of soaring energy costs 38%34%28%0%5%10%15%20%25%30%35%40%Will definitely pass onLikely to pass onThe business will absorb the costManufacturing Monitor 28/

9、02/22Chart 1:Manufacturers indicate that the majority of the industry will be passing any NICs rise straight through onto customersSource:Make UK Manufacturing Monitor February 2022The National Insurance increaseThe planned National Insurance Contributions(NICs)hike comes at an astoundingly inopport

10、une time for UK manufacturing,not least because it will add to what are already soaring costs for UK businesses,but it will directly work against manufacturers efforts to secure labour in the industry during an unprecedented shortage of workers.Make UK is calling for the planned NICs rise to be post

11、poned until the economy is in a more robust position,a position where such a significant change such as this wouldnt stand to threaten what is an already fragile economic recovery.We believe that the public purse should be recouped not through means of taxing the supply-side during a supply crisis,a

12、nd instead,should focus on means of recovering the purse through growth.Further to the potential damage to manufacturings recovery,the inflationary implications to the wider economy are significant.While input inflation is soaring,consumer inflation is rising at a concerning pace too.If this NICs ri

13、se comes to pass,the majority of manufacturers indicate that they are likely to pass this cost directly onto customers,further fuelling the inflationary fire that will continue to trickle down into the consumer economy.The planned NICs rise stands to be an anchor on growth for the sector,as it will

14、further worsen one of the most significant challenges manufacturers are facing in their business at the moment:the shortage of labour.Its this inability to fill roles reliably that is leading to the industrys inability to fulfil their booming order books,in turn leaving individual manufacturers miss

15、ing out on maximising their potential during the post-pandemic recovery period.60%of companies say the National Insurance rise will have a moderate or significant impact on recruitment.The soaring cost of doing businessManufacturing input prices,on aggregate,have been climbing since April of 2020,an

16、d have continually soared since December of the same year.Currently,as the latest ONS Producer Price Inflation data shows,the headline rate of input prices showed positive growth of 13.6%on the year to January 2022.While Manufacturers are also raising their factory gate prices,in other words,the pri

17、ces of their finished goods,at an alarming rate,its proving to be insufficient to offset the erosion to their operating margins.Chart 2:Hierarchy of severity of cost increase to manufacturers in February 2022Manufacturing Monitor 28/02/22The most pressing cost challenge to manufacturers comes in the

18、 form of material costs,with 54%saying that they are facing a major increase,even now two months into the new year.Whats of even further concern,is that 8%of the industry suggest that these material increases are so significant that they are an existential threat to the business.34%11%5%9%5%50%50%49

19、%47%32%13%34%37%40%54%3%5%8%5%8%0%10%20%30%40%50%60%70%80%90%100%Other(e.g.finance,rents)Logis?cs/distribu?on costsCost of different energy sourcesWages and/or wider employmentCosts of raw materials/components/packaging/parts orequipment.InsignificantManageable increaseMajor increase Business threat

20、ening increaseSource:Make UK Manufacturing Monitor February 2022 This is EngineeringManufacturing Monitor 28/02/22However,material costs are just one of the facets of the costs tidal wave the industry is facing,with energy and labour cost challenges following in quick succession.Wage inflation in th

21、e industry has been significant and shows no signs of cooling in the immediate future.Larger trade unions are negotiating with employers for group settlements as high as 7%for their workforce,using the exceptionally high forecasts for retail price inflation(7%)as a basis.Vacancies within the industr

22、y are at a time-series high,with the highest manufacturing vacancies per 100 employed for twenty years reported by the ONSs latest employment figures.The current rate of vacancies in the industry stands at 4.0 roles per 100 employed.By way of comparison,the average figure across that same twenty-yea

23、r time period is only 1.9,demonstrating just how short for labour the manufacturing sector is at the moment.There is a multitude of factors that are exacerbating the challenges manufacturers are facing when it comes to accessing labour,with the leading issues being:increased difficulty sourcing labo

24、ur from the EU following the UKs exit from the Bloc,an expensive labour market,changing workforce attitudes towards flexible working,and reduced hours or early retirement.While the all-UK economy vacancy rate has also grown significantly between March 2020 and now,by approximately 65%,the manufactur

25、ing vacancy rate has grown by a staggering 91%in that same period,highlighting the unique challenge manufacturing businesses face for what is typically on-site labour,even despite the manufacturing industry offering 12%higher wages on average than the wider economy.Further compounding the issue of l

26、abour shortage,manufacturers are seeing their existing staff either work reduced hours,or take early retirement,following the pandemic.57%of the industry has reported dealing with this issue in some capacity in their business.57%of manufacturers have seen an increase in retirement or reduced hours i

27、n the wake of the pandemic.This is EngineeringManufacturing Monitor 28/02/22Manufacturers had been grappling with the successive increase in both labour and material costs for at least the past two quarters,which had both been gaining momentum since the start of the post-pandemic recovery period app

28、roximately half a year ago.What has caught many businesses off guard now in the new year,is the sudden and significant increase in energy prices they are having to fund.This challenge is particularly pronounced for those manufacturing businesses that are energy-intensive in their production.Assault

29、from left field:Energy CostsWhile energy prices had been increasing in the background for a little while before the turn of the year,for many in the industry,their first exposure to these new heightened costs came when their current energy contracts expired,and the time came for renegotiation.As par

30、t of this editions fieldwork,we wanted to understand what practical steps the industry had taken in response to this energy cost inflation:Chart 3:Actions manufacturers have taken in response to heightened energy prices in 2022 3%11%11%15%17%18%19%28%39%41%47%0%5%10%15%20%25%30%35%40%45%50%OtherTake

31、 new/further finance to cover expected energycostsNo ac?on taken(exclusive)Redistribute capital from other areas of the business tocover energy costsTemporarily halt produc?on of products that are energy-intensive to fabricate.Stay/switch onto a variable tariffOn-site genera?onAc?vely search for a n

32、ew energy provider Price-in increasing energy costs into final productRenego?ate fixed tariff for coming months/years.Adjust businesses prac?ce to reduce energyconsump?onSource:Make UK Manufacturing Monitor February 2022With the strength of the industrys order books,manufacturers are motivated to co

33、ntinue production at as high of a pace as possible,but the industry wont be able to sustain output growth if heightened input prices are sustained in the long term.When the first signals of significant post-pandemic input price inflation were emerging,both analysts,industry,and indeed the Bank of En

34、gland itself expected these pressures to be transitory,perhaps only lasting 6 months in the first instance.Now,approximately 10 months later,expectation horizons on when this inflationary boom will cool have been widely extended.49%of manufacturers think it will Some comparative optimism is seen in

35、the expectations for logistics costs,with only 5%expecting it to take more than two years for these costs to return to normality.take over a year for energy prices to settle,with 23%expecting their costs not to settle for at least two years.This is a worrying outlook for the sectors input energy pri

36、ces,fuelled by pessimism within the sector that the UK economy is set for an endured assault on their energy costs.Unfortunately,the same pessimism is observed across other business costs,as businesses continue to push back their expectations as to when their input costs will return to normality.43%

37、of businesses expect material cost inflation to take over a year to settle,with a further 15%expecting it to take at least two years.Manufacturing Monitor 28/02/22Chart 4:Time expectations for when manufacturers expect various cost pressures will return to baseline inflation 30%20%17%15%11%29%21%25%

38、18%18%17%31%27%25%22%16%23%17%28%26%8%5%15%15%23%0%10%20%30%40%50%60%70%80%90%100%Other(e.g.finance,rents)Logis?cs/distribu?on costsWages and/or wider employment costsCosts of raw materialsCost of different energy sourcesWithin 3 monthsWithin 6 monthsWithin 12 monthsWithin 24 monthsMore than 24 mont

39、hsSource:Make UK Manufacturing Monitor February 2022Manufacturing Monitor 28/02/22At the time of the Chancellors Super Deduction announcement,a pro-business investment policy that saw a new 130%first-year capital allowance for qualifying plant and machinery assets;and a 50%first-year allowance for q

40、ualifying special rate assets,the manufacturing industrys reception of the policy was more nuanced than expected.A few weeks after its announcement,Make UK researched the sectors attitude towards the policy.In the wake of the budget announcement at the time,77%of the industry said their business con

41、fidence was unchanged,20%improved,and only 3%unchanged.Out of all major announcements at the time,businesses identified super deduction as having the most positive potential impact on their businesses(58%),(out of JRS extension(42%),apprentice incentives(13%),R&D tax credit increase(38%),Free Ports(

42、14%),RLS(4%),Help to Grow(11%)Percentages exceed 100 as from multiple choice of pick two.Regarding planned use of the scheme,approximately 50%said Super Deduction will have no impact on their investment plans.Of those do did intend to use it,23%said they will be increasing their total level of inves

43、tment,and 28%said they would bring forward their already existing investment plans to take advantage of the scheme.Those businesses who have not,or intended not to use the scheme commonly cite some or all of the following reasons as to why:Exclusion of leasing Exclusion of used/second-hand Investmen

44、t plans are too rigid Lack of investment capital/low spare capital due to Covid Lack of confidence/do not want to commit capital during the pandemicSuper Deduction and InvestmentWe often found that companies in the SME category would more commonly cite the leasing and used exclusions,as it follows t

45、hat this segment of the industry would be more likely to acquire capital goods by one or both of these processes.In this edition of Manufacturing Monitor,as the scheme is approximately halfway through its lifecycle,we elicited how much investment manufacturers had made using the Super Deduction sche

46、me.The median value reported to us was 228,500,with the mean value being significantly larger as the data is skewed by some large companies making significantly larger investments.Make UK continues to recommend that the Super Deduction policy is re-announced with a significant extension,so that indu

47、stry can effectively plan investment in the medium to long term,moving it away from a short-term Covid intervention policy.The industry has become increasingly cautious over the last two years of spending capital,especially given the continued input price pressures the sector is facing,and will like

48、ly continue to face,for the rest of 2022.Policies,such as the Super Deduction,can be reformed as a longer-term scheme to bolster investment,and subsequently confidence,beyond the immediate future.Other tweaks to the scheme are also recommended,particularly concerning the leasing and used exclusions

49、in the policy,as these exclusions disproportionately affect smaller sized businesses.The median figure manufacturers invested using the Super Deduction scheme was 228,500 as of February 2022Manufacturing Monitor 28/02/22Customs:the second comingIts no secret that the industry had to adapt significan

50、tly last year in the wake of the new trading relationship between the UK and EU.Now,a year later from that point,we surveyed to elicit how the phasing While the increased administrative accosts associated with these new controls takes the top position as the most impactful,with 62%of the industry en

51、during the added cost,perhaps the most concerning consequence of these new controls is in of import controls is affecting manufacturers operations,particularly when set against the backdrop of the current supply chain challenges.the delay to products entering and leaving the UK market(50%),given ext

52、ended product lead time and inability to secure supply are the chief factors limiting manufacturers ability to maintain output growth presently.Chart 5:Manufacturers reveal what impact the new customs rules as of the 1st Jan 2022 have had on their operations 10%11%37%48%50%62%0%10%20%30%40%50%60%70%

53、No impactToo early to say but we expect it will affect our businessIncreased tariff costsIncreased logis?cs costsDelays to products entering and leaving the UK marketIncreased administra?ve(Incl.staffing,customsknowledge,advice)costsSource:Make UK Manufacturing Monitor February 2022 This is Engineer

54、ingManufacturing Monitor 28/02/22AppendixSurvey details,key questions and%share of respondentsSample:132Survey Period:02/02/22 23/02/22With the rising prices in the energy market,what action,if any,has your business taken?(Select all that apply)Other3%Take new/further finance to cover expected energ

55、y costs11%No action taken(exclusive)11%Redistribute capital from other areas of the business to cover energy costs15%Temporarily halt production of products that are energy-intensive to fabricate17%Stay/switch onto a variable tariff18%On-site generation19%Actively search for a new energy provider28%

56、Price-in increasing energy costs into final product39%Renegotiate fixed tariff for coming months/years41%Adjust businesses practice to reduce energy consumption47%How immediate and severe are the cost pressures facing your businesses?(select one per row)InsignificantManageable increaseMajor increase

57、Business threatening increaseOther(e.g.finance,rents)34%50%13%3%Logistics/distribution costs11%50%34%5%Cost of different energy sources5%49%37%8%Wages and/or wider employment9%47%40%5%Costs of raw materials/components/packaging/parts or equipment.5%32%54%8%Manufacturing Monitor 28/02/22When do you t

58、hink these will resolve for your business?(select one per row)Within 3 monthsWithin 6 monthsWithin 12 monthsWithin 24 monthsMore than 24 monthsOther(e.g.finance,rents)30%29%17%16%8%Logistics/distribution costs20%21%31%23%5%Wages and/or wider employment costs17%25%27%17%15%Costs of raw materials15%18

59、%25%28%15%Cost of different energy sources11%18%22%26%23%How much investment has(or will)your business made using the Super Deduction scheme?Median228,500To what extent have you seen an increase in early retirement or reduced hours following the pandemic?(select one)Havent seen/No evidence43%Slightl

60、y more than usual30%Moderately more than usual20%Large increase over usual7%What impact,if any,have the the new customs rules(1 Jan 2022)had on your business?(Select all that apply)No impact10%Too early to say but we expect it will affect our business11%Increased tariff costs37%Increased logistics c

61、osts48%Delays to products entering and leaving the UK market50%Increased administrative(Incl.staffing,customs knowledge,advice)costs62%Is the forthcoming increase in National Insurance Contributions(NICs)likely to impact on your recruitment plans?(select one)Yes it will significantly impact recruitm

62、ent27%Yes,it will moderately impact recruit33%No,it will have no impact40%How likely are you to pass the cost of the NICs rise onto your customers?(select one)Will definitely pass on38%Likely to pass on34%The business will absorb the cost29%The results of the first Make UK Manufacturing Monitor of 2

63、022 provide unique insight relevant to the current economic environment,covering several elements including the impact of escalating costs,the impact of an unstable energy market,Government investment policy,National Insurance increases and the implications of new customs checks.About Make UKMake UK

64、 works for the success of more than 2.7 million men and women employed in UKmanufacturing.Representing member companies from small businesses to multinationals across every industrial sector,we are the most influential voice of manufacturing,enabling our members to connect share and create opportuni

65、ties together.We stimulate success for manufacturing and technology related businesses,enabling themto meet their objectives and goals.We empower individuals and inspire the next generation.We create the most supportive environment for UK manufacturing growth and success andwe represent the issues t

66、hat are most important to our members,working hard to ensureUK manufacturing remains in the government and media spotlight.Our extensive knowledge of manufacturing means were able to influence policymaking at local,national and international levels.We push for the policy changes that our members want to see.We are the voice of manufacturing.For more information please contact:James Brougham Senior Economist jbroughammakeuk.orgManufacturing Monitor 28/02/22Make UK General Enquiries0808 168 5874 makeuk.orgMakeUKC