REGIONAL REPORT
The need to build resilience into business models has been highlighted by supply chain shortages and the survey shows that around a third of companies ( 35 %) are planning to counter this by using British rather than international suppliers , while almost a third ( 31 %) said they were planning to re-locate some , or more , of their production back to the UK .
The survey also shows the increasing drive towards ‘ net zero ’ for manufacturers . Half of companies ( 49 %) said they plan to invest in green technologies or energy efficiency measures in 2022 , with a third saying that this investment has increased . A third also said that the process to transition to ‘ net zero ’ had been accelerated by the recent COP 26 conference .
Make UK has forecast that manufacturing grew + 6.9 % in 2021 and is predicting growth in 2022 of + 3.3 %. Its survey of 228 companies was conducted between 27 October and 22 November 2021 . UK manufacturing incentives in 2022 include 130 % capital allowances for qualifying plant and machinery investments .
UK market outlook
“ While it was a difficult year for the UK with the pandemic and post-Brexit adjustments , the economy proved to be more resilient than expected . And the foundation for this resilience came from a rapid vaccination campaign , and strong coordinated policy support , on which output and employment have returned close to pre-pandemic levels even with the headwinds that the UK and the world is facing . Financial stability has been preserved . The UK ’ s strong policy frameworks have been critical to providing the space to facilitate the impressive and coordinated policy response ,” commented Kristalina Georgieva , managing director of the International Monetary Fund ( IMF ) on 14 December 2021 .
“ Having said that , COVID-19 and the changes it has caused will not fade quickly . These changes have strained supply chains , contributed to rising prices and tightened labour markets , putting pressure on inflation , both globally and in the UK . And now a new variant of COVID once again raises uncertainty and complicates policymaking ,” she added .
She welcomed the comprehensive growth strategy put forward by UK authorities such as growth pillars covering infrastructure , skills and innovation . She also highlighted strategies , for instance Levelling Up and Net Zero . However , she said , options to scale-up efforts further should be pursued , supported by raising additional revenues . A good option , said the IMF , would be to “ broaden the tax base for the upper end of the income distribution , since balance sheets have considerably strengthened for this cohort .”
For the UK ’ s economic outlook , the IMF still sees strong growth in the near term — about 6.8 per cent in 2021 and five per cent in 2022 , consistent with its October WEO projections . However , it also believes that Omicron will have some impact in the near term , and inflation pressures will linger into 2022 ( estimated to peak at about 5½ per cent ).
Brexit has impacted supply chains .
UK sheet metal part production .
The IMF still sees strong growth in the near term — about 6.8 per cent in 2021 and five per cent in 2022
Risks , said Georgieva , are considerable in the period ahead and Omicron also brings considerable uncertainty .
“ Supply bottlenecks will still be prevalent during 2022H1 . Inflation would peak at about 5½ per cent in the spring of 2022 , before gradually returning to target by early 2024 ( helped by declining global energy prices , more robust supply chains and tighter demand management policies ). In the medium-term , growth would ease to about 1½ per cent , with real GDP settling at about 2 – 2½ per cent below its pre-pandemic trend , held back by investment shortfalls in 2020 – 21 and a less-than-full recovery of labour force participation ,” explained the IMF .
This UK GDP forecast by the IMF is worse than the IMF forecast for every other G7 country . This may reflect the UK ’ s unique position , with Brexit as well as COVID-19 negatively impacting labour markets .
“ The macroeconomic landscape is likely to be more volatile going forward . Sectoral shifts , as the economy adjusts to new post-pandemic and post-Brexit norms and undergoes an energy transition , may not be smooth ; and some endogenous stabilising mechanisms for the UK ( net immigration and imports ) may be less potent . Shorter economic cycles with greater impact from supply-side disturbances may manifest . Financial market measures of expected inflation indeed appear to be pricing some combination of higher inflation and risk due to volatility ,” added the IMF .
The impact of Brexit
Brexit has created or exacerbated several of the challenges faced by UK manufacturers , affecting issues such as EU imports , exports , investment and logistics / labour flows , as manufacturers attempt to navigate new waters as a result of trade restrictions with Europe .
“ Brexit has been a drag on growth . It brought new red tape on commerce between Britain and its largest and closest market and removed a large pool of EU labour from the country on which many businesses had come to rely . The combination has exacerbated supply chain shortages , stoked inflation and hampered trade ,” commented news analyst , Bloomberg .
Lord Frost , who negotiated the trade deal ( TCA ) with the EU and then sought to unpick it once the consequences became clear , became the third Brexit minister to resign recently .
“ UK-EU goods trade volumes fell sharply after the TCA came into effect and remain below their pre-Brexit ( and pre-pandemic ) levels in 2019 . UK goods exports to the EU fell by 45 per cent in January 2021
40 | sheetmetalplus . com | ISMR February 2022