South West manufacturers are being hit by “eye-watering” inflation as a continued downturn in the aerospace sector affects factories, a new report says.
As the Consumer Price Index rises to 5.1%, a new study from business adviser BDO and manufacturers’ organisation Make UK shows input costs are a problem for West Country companies.
However, the latest quarterly Manufacturing Outlook survey shows that most indicators remained positive although growth slowed compared to the previous quarter, which is very much in line with the national picture and other business surveys.
More BDO/Make UK reports
While total orders remained reasonably positive at a balance of +11%, this is significantly below the national picture and was only held up by a reasonable export performance as UK orders actually fell.
In particular, the continued downturn in the aerospace sector is still dragging on growth in the South West and may impact on the region for some time to come as airline travel slowly recovers, the report said.
This mixed picture was evident in recruitment and investment intentions. While the jobs outlook is fairly positive at a balance of +22%, the balance on investment intentions fell to -22%, despite Chancellor Rishi Sunak extending the Annual Investment Allowance in the Autumn Budget.
As with the national picture, the big challenge for companies, in addition to attracting and retaining talent, remains the escalating inflationary pressures which are forcing companies to raise prices, in many cases significantly, the report stressed. Make UK has forecast growth for manufacturing in 2021 of +6.9%, down slightly from +7.1%, and growth in 2022 of +3.3%.
Jim Davison, region director for Make UK in the South West, said: “While manufacturers in the South West will be able to enjoy some festive cheer this year, their spirits will be tempered by the eye-watering impact of escalating cost pressures which are leading an increasing number to pass these on to the consumer. Given the global nature of some of these pressures there is little sign that they will abate anytime soon.
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“However, they will hope as we enter a fresh year that these will gradually unwind, with the compensation being that demand prospects among their major markets continue to look strong.”
Matthew Sewell, head of manufacturing at BDO in the South West, said: “Manufacturers faced a brutal 10% decline in output in 2020. This year, they have rebounded proudly with some record-breaking figures. There are clearly challenges ahead for businesses in the South West. Cost pressures – input prices, labour, logistics and inflation – are settling in for the long haul and will continue to impact manufacturers, however they can enter 2022 on significantly firmer footing than last year.”
