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Confidence among manufacturers has fallen at its sharpest rate since the pandemic in response to Rachel Reeves’ tax-raising budget.
“The mood among companies has darkened markedly” since October, according to a survey of more than 300 companies by BDO and the industry lobby group Make UK, with confidence down 15% in Q4, the largest quarter-on-quarter drop since the spring of 2020.
Before October, optimism was at a ten-year high and 58% of respondents expected a brighter economic outlook.
According to the survey, 86% of manufacturers will see their business costs rise due to the budget’s minimum wage and national insurance rises, with almost half of companies saying the increase will be ”significant”. 70% have already seen their costs increase by up to a fifth in the last year.
“Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence,” said Fhaheen Khan, senior economist at Make UK.
“While overall conditions had begun to gradually improve during the year, the budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some.”
As a result, Make UK has cut its growth forecasts with manufacturing contracting by 0.2% this year and growing by just 0.7% in 2025.
This is despite output and orders remaining positive, and recruitment and investment intentions looking stable.
In response, Make UK urged the government to look at measures which might help alleviate the impact of rising costs such as reforms to business rates and incentives to decarbonise.
The survey is further evidence that the Labour government’s tax raid in October hit business morale just as the UK economy showed signs of slowing.
Last week, official data showed the economy shrank by 0.1% in October, the second monthly contraction in a row.
The Bank of England will consider a further cut to interest rates on Thursday, although markets expect it will remain unchanged at 4.75% following cuts in November and August.
This week in the City
It’s a very quiet week in the City as Christmas parties get into full swing.
UK inflation figures are due on Wednesday.
On Thursday, the Bank of England will consider a cut to interest rates.
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