- The slow demand pickup after the unlocking and the continued supply chain disruptions have meant that recovery is very slow in the manufacturing sector.
- The threat of withdrawal of stimulus measures like the furloughing schemes before firms can stand on their feet have forced many to take the layoff measure.
In what could be a very worrying development for the British economy, Make UK, a sectoral group of British manufacturers has stated that more than 40 per cent of the factories in the country are planning to prune staff force in the next six months. The industry group which publishes an index on the state of manufacturing in the country has come up with this assertion based on a survey conducted by it among 274 manufacturers between 22 June and 29 June. Calling on the government to take urgent action to support jobs in the country, the group pointed out that the situation is a further deterioration of what the state of the industry was in the month of May when only 25 per cent of the factories had reported that they were planning redundancies in the next six months. The report further stated that it would take the manufacturing sector at least until 2022 to fully ward off the pandemic malice, costing several billion pounds of gross value added to the British economy, out of which £35.7 billion worth of gross value added is expected to be lost this year alone.
The state of recovery in the manufacturing sector post unlocking
About a fifth of manufacturers in the country are operating at between 25 to 50 per cent of their full capacity. During the last two weeks of June, nearly 67.8 per cent of the manufacturers responding to the survey reported that they had registered a decrease in sales, over the pre-March 2020 levels and 60.9 per cent reported that they had experienced the same with incoming orders. Though 98 per cent of the manufacturers are already back in business, what is most worrying, is that as much as 30.4 per cent of the respondents to the survey expect that it will take them more than 12 months to get back to normal trading conditions.
There has been relaxation made by the government in the social distancing measures imposed on factory workers over the past two months which has helped the sector to ramp up its activities and made the life of manufacturers a bit easy. There are, however, two other factors that remain the biggest impediments in the speedy recovery of the sector, first is the slow pickup in demand and the second is the supply chain disruptions that have taken effect during the past few months.
Sluggish demand – The fear of infection, and social distancing measures implemented across the manufacturing sector since the unlocking was first announced, has meant that factories have to adopt additional measures to ensure safety for their staff, this, of course, would add to the cost of production and would reflect on the final prices of finished goods. In addition to that, the demand for goods has also become sluggish as the economic activity in the country is slowly picking up, and is not at par with what the manufactures would expect for their businesses to achieve sustainability. The result is that manufacturers are facing mounting costs and are either not bringing many of their staff out of furlough or planning lay off many of them to control their costs. The sectors which are having the most difficulty in ramping up their production levels are the automobile manufacturing sector, mechanical equipment sector and aerospace manufacturing sector whereas the sectors which have witnessed a growth in demand during the period are food & drinks sector, pharmaceuticals sector and chemicals sector.
Supply chain disruptions – Manufacturers are highly dependent on their supply chains, many of the times when suppliers are located overseas and in high-risk areas, bringing raw materials from those areas may be next to impossible. With transportation services continuing to be restricted both nationally and internationally, manufacturers are facing long procurement delays. With no clear view as to when the situation will improve on this front, manufacturers are unable to predict how long before they can ramp up to their full capacities. This uncertainty is also forcing them to adopt cost-cutting measures, like mothballing some of their machinery and laying off staff.
The demand of the Manufacturers amidst the threat of withdrawal of the government schemes
In all probability, the government would be withdrawing its stimulus measures before many of the manufactures have availed the opportunity to fully recover. Manufacturers who have that realisation are transforming their businesses to be lean and well prepared to sail through a weak demand condition that they expect to face during the next few years. Make UK has made a number of demand to the government on behalf of the manufacturers to ease their pain and aid in the early recovery of the sector. In its survey Make UK found that six in ten manufacturers called for a reduction in business rates, about 43 per cent wanted the government to provide subsidies to invest in automation, artificial intelligence, and digital technologies, while 34 per cent wanted increased support to push through exports. In addition to that, the industry body also believes that measures like extending the time for payment of VAT and deferring the PAYE costs will go a long way in easing the cost base and providing immediate relief to the manufactures.
The institute of public policy and research had said a few days ago that the situation on the unemployment front is getting very serious. In the absence of urgent policy action, the number of people in the country without jobs could very well increase to 2.1 million, which would be about 10 per cent of its total working population. The measures being suggested by Make UK will make the recovery process for the manufacturers a little easier. Policy measures that will encourage people to buy more goods and to open up export markets will be a welcome move, which will bring back a lot of confidence in the manufacturing industry.