The UK Manufacturing Sector Seeks Further Support from The Government

Summary

• The current state of manufacturing in the United Kingdom amid the lockdown
• The current demand-supply dynamics affecting the sector and the government support for the industry
• The government is likely to come up with various other support measures to help the industry
• Companies across the manufacturing sector have been affected by the pandemic and are in dire need of support

The manufacturing sector not only in the United Kingdom but across the globe has come to an almost standstill because of the coronavirus pandemic. The lockdown conditions have meant that the majority of the workforce remain indoors and are unproductive, unlike some other industries, basically the service, which was able to partially function with employees working from home. Though the government has allowed for employees to join work since its first phase opening of the economy last month, the social distancing measures have meant that the productivity levels are not going to anywhere near where it was prior to March 2020. Different manufacturing sectors though have a varied set of problems, with the most affected being the automobile sector which was already suffering a slowdown due to cyclicity effect even before the lockdown, with food and beverages sector suffering the least as it continued with its activity in full swing even during the lockdown.

The industry currently has made a bailout request to the government as at least thousands of manufacturing companies, and the jobs of associated employees are at risk. The current demand and supply factors affecting the manufacturing sector in the country has not been very conducive as well. While on the demand side the lockdown and the impending economic situation in the country have impacted the spending behaviour of many a Britons, the supply-side bottlenecks have ensured that manufacturers are not able to ramp up their production lines as fast as they should. The general consensus among economic institutions responsible for keeping a tab on the British economy is that the country is set to enter into an economic depression not seen in three hundred years, this along with an increasingly higher number of jobless claims has set a very depressing mood in the country. People are now more worried about their wellbeing and livelihood than they had been even during the period prior to Brexit, they have been postponing their spending and saving more in the likelihood of prolonged periods of joblessness. There are now a greater number of manufacturing firms on the verge of collapse in the country due to collapse of exports in the wake of international restriction of men and materials than it was prior to the lockdown. On the supply side also, sourcing of materials and components has also become a problem due to the lockdown. There are several manufacturers in the country who are heavily dependent on imported components and have been suffering major supply chain disruption long before the lockdown was imposed in the country. Several companies in leading manufacturing industries of the country had started to issue production loss warnings, and profit warnings even before the lockdown were in place, now with even more logistical bottlenecks in place the life of a British manufacturer is tougher like it was never before.

The government, in its stimulus packages, announced so far, has not given any specific reliefs to the manufacturing sector. The various stimulus schemes have only been directed towards ensuring that the least number of people lose their jobs while their employers are able to tide over the lockdown induced slowdown period. Most of the manufacturers at this time need measures that would ensure there is a fillip to demand in the country so that they can ramp up production. In the absence of fiscal measures to promote consumption in the country, the loans and grants being given out will have little to no effect on the fortunes of the manufacturers of the country.

The government though has indicated that it has been in constant touch with the representatives of various manufacturing industries and would come up with an emergency budget to revive the economy. There is also the recently announced plan called the “Project Birch” whereby the government will provide state funding to protect companies whose failure would be catastrophic for the country. Other than that, there are several other measures that the government can undertake to support the manufacturers. The government can roll out a number of tax sops as coupled with the government procurement policies so that the demand and pricing conditions become conducive for the manufacturers to stand back on their feet, while also rolling out tax plans for consumers to buy more goods.

There are a number of manufacturing companies that have been badly affected by the coronavirus pandemic. Jet engine manufacturers Rolls-Royce is in talks with the government for funding through the existing government research funding programme. Jaguar land rover is in talks with the government for a potential state aid spanning up to £1 billion; similarly, Aston Martin and Tata Steel have also been contemplating seeking state funding to tide over the pandemic blues. Hence there is a wide range of manufacturing sectors ranging from aerospace to car manufacturing to steel which is seeking government intervention to tide over the crisis. Though there are signs of recovery, but things would take long to come to normal as the economy is struggling to build momentum to escape the deepest recession in living memory.

The government intervention, which may very well take the shape of equity stakes to one time grants, would go a long way in helping the manufacturing sector gain back some of the ground it has lost in the past couple of months.