UK industrial investment to fall as recession looms

Investment in British industry is set to fall for the first time in nearly two years as companies begin to cut spending as a recession looms next year.

Make UK, the trade body, said the balance of members reporting a rise in investment intentions in the last three months of the year fell to minus 5 per cent from plus 7 per cent. This was the first time in seven quarters, since the peak of the coronavirus pandemic, that the measure had turned negative.

The quarterly Make UK/BDO Manufacturing Outlook survey published on Monday also forecast output to fall 4.4 per cent this year, compared with a “very strong” 2021, and warned of further declines.

In its September forecast, Make UK had still expected growth of 0.6 per cent for the year and said the change in outlook highlighted “the extent to which conditions for the sector have weakened significantly, particularly in the final quarter of the year”. It added that it expected a contraction of 3.2 percent in 2023 as Britain entered recession.

The balance of manufacturers reporting an increase in orders also fell sharply last quarter, from 15 percent to 6 percent, and the measure fell to minus 2 percent for the first three months of 2023.

The data will put further pressure on the government to find ways to stimulate business investment, with companies across the country warning they will rein in spending as economic conditions worsen.

The decline also comes ahead of the end of the government’s tax incentives designed to boost business investment – the so-called super credit tax break – next spring.

Manufacturers have been hit by higher costs, especially in the more energy-intensive industries, while many are still struggling with the costs and extra paperwork as a result of Brexit.

The government has been helping businesses with energy costs for six months, but business leaders warned that the cliff edge when that support ended in March could lead to widespread business failure if prices remain high. Meanwhile, with Britain and other parts of the world facing recession next year, companies are worried that demand for their products will also fall.

Make UK said worsening economic conditions were exerting a “vice-like grip on the sector”, with rising costs, tighter fiscal and monetary policy and weakened consumer demand “forming a perfect storm”.

Industry has grown frustrated with the government’s lack of efforts to help a key sector of the UK economy, with no sign yet of a rumored new industrial strategy or pro-growth measures to boost investment, such as new tax incentives.

Stephen Phipson, chief executive of Make UK, said there was “just no sugar coating for next year and possibly beyond”.

He added: “The UK risks falling asleep and accepting that little or no growth is the norm. The Government needs to work with industry as quickly as possible to deliver a long-term industrial strategy that has growth at national and regional level at its heart.”

The government said it was continuing to work to strengthen the UK’s manufacturing industry”, pointing to tax incentives including the Annual Investment Credit and Super Allowance, adding: “Our Autumn Statement sets out further measures to boost growth and productivity by investing in people, infrastructure and innovation.”

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