Make UK and PwC Executive Survey 2024 webinar

Transcript

Michael O’Dwyer: Morning, everyone. Welcome to our webinar where we're going to look today at the Make UK and PwC Executive Survey 2024. The object of today's exercise really is to have a conversation, to learn and discuss a little bit about the findings of the survey, which was released last week. And this is the new Make UK report that has been delivered in association with PwC UK, and this survey has been running annually since 2012.

So it's closely watched not just within the sector but more widely as well, not least in the media, which is my world and in Westminster and elsewhere as well. It tracks manufacturers’ expectations, and for the year ahead it includes insights about the sector's potential for growth and leadership and productivity, and also is a chance to consider the response to economic challenges that the UK has faced in recent years and the opportunities that may be ahead in the coming 12 months and beyond, not just in the UK but globally.

My name is Michael O’Dwyer. I'm the Chief UK Business Correspondent at the Financial Times and I'm delighted to be joined by a great panel today and we will very shortly be meeting all of them. But just to let you know who they are, if you haven't already seen on the literature beforehand, we have James Brougham , Senior Economist from Make UK.

Cara Haffey who is the Automotive and Manufacturing Leader at PwC UK. And we also have Sharon Lane, Managing Director of Tees Components. So I look forward to discussing the findings of the survey and getting their insights and input over the next hour or so. And we'll also be looking to get questions from you in the audience. So there's an opportunity to write in to us in the in the box that should be on your screen.

Feel free not to wait until the end to ask your questions. We are certainly very keen to get questions at the end. But if something strikes you during the conversation that you'd like to like to get involved in at that point, then by all means, please do and we can try and integrate some of those questions into the conversation as well.

I'm going to get out of the way soon and ask for initial insights from our panellists. But just to give you a brief overview, for those of you who might not have had a chance to digest the survey in full. Broadly, I think that there seems to be a tone this year of cautious optimism. So more than 200 companies were were surveyed and almost half of respondents said they expected conditions in the sector to improve in 2024.

Relative to other jurisdictions, the UK was viewed more positively than last year, which is good to see for everyone. Almost a third of respondents believed that the UK was increasing competitiveness against Germany and France, for example, and more than a quarter said the same in relation to Spain and Italy. And however, it's not all purely good news that I think the responses were pretty pretty clear in the sense that there's still a threat to competitiveness of UK manufacturing posed by not just the US, well off course, with the US having its Inflation Reduction Act, which is the big bazooka that lots of people have been talking about for the last year or two now. But also India and China remain a major threat and France in terms of competitiveness. I won't recite and rehearse all the various other findings which are there and hopefully we'll have a chance to cover a lot of them during the course of this conversation.

But to begin, I'll come to you first, James, if I can, and to begin, I just like to ask you what your sort of overall impression was after seeing the findings of the survey, And is there anything in particular, I suppose, that you think was noteworthy or particularly worthy of focus.

James Brougham: Good morning, Michael, and thank you. Yeah, I think what's quite interesting is at least, at least for me and particularly coming off our economic data or at the tail end of last year, it's very refreshing to have that that confidence in the findings. A lot of this is being driven by the idea that we've really reached the floor or the ceiling, depending on how we want to look at it when it comes to where where the base rate's going to go and where general economic activity, the rates of that, the pace that activity is going to go in 2024.

Of course, challenges do still remain, but perhaps for the first time, at least in the in the fields I work in over the past year, as you may tend to, that air of confidence is superseding that the air of worry that we've seen in really throughout most of 2023. Now, a lot of this as well could be driven that when last ran the Executive Survey, this was at a time of really peak political uncertainty, which was driving a lot of confidence down for the sector, particularly with regards to trade and the future of the UK, the manner of the UK's manufacturing economy and where that sat in international supply chains, what it meant for business policy, as there was quite a lot of uncertainty about where businesses would locate their their operations for the coming years to come. That's that's eased a lot since then and that's I think what we're seeing coming out very strongly in the data. We're seeing a country and a manufacturing economy that is far more sure-footed than it was at this time last year.

But of course, the air of the trading environment has perhaps matured into into that high cost environment when it was a bit more of a novelty last year. And so the sector is a lot more used to operating within an environment that is admittedly has continued to become inflationary over the course of the year. However, it's far less of a novelty now and businesses have had time to adapt to what surely should not become the new normal as 2024 and 2025 move through. And I think that's driving that confidence as well. A lot of it's not. It's not if it's when we're going to see that base rate start to cool down and it's when we're going to see the rates of inflation within within the production cycle. Indeed, we're already seeing that in producer producer price inflation indices.

We're still seeing it just about stay flat to come down a little bit. Still in index values, a lot higher than it used to be. But adding to that, add that we've we've hit the temporary rock bottom of 23, 24 in terms of the rates of that inflation in the onward pressure on costs and it's going to ease from here, the rate of which is still uncertain.

Michael: Of course, so I imagine we will pick up on some of those points about about political uncertainty and that and the timing of that that hopefully disinflationary or reduction in inflation at least is a trend that that people are hoping to see some of this this year. And of course, some of that will be dependent on what the Bank of England does with interest rates.

Cara, I might come to you next. Just just open basically with the same question, I think that I posed to James. I mean, your initial response, but also if there's anything in what he said there, particularly around the timing of of perhaps some sort of easing in inflation of what you would expect to see there over the coming year.

Cara Haffey: Yes. Thank you, Michael. And morning to everyone and thanks for joining the webinar. And I think you know, we've had much talked about in costs and the rates of increases. I think certainly in our client base, people are at least feeling like they can probably budget for that. Now last year it was too difficult because everything kept changing and whilst budgets are usually wrong, I think the percentage they were wrong when people were trying to do them last year was hard.

And going back to your question on the report, I think the the key thing that I suppose I take as a really difference this year, having done it a number of years alongside Make UK, was this piece around new products, a new product portfolio, new markets and that real kind of I suppose, specificity to kind of the growth opportunity, particularly in the green economy.

And it's something that we've been talking with our clients for a while now that actually people skills, their engineering capability is as relevant to the green economy and being able to kind of pivot their business towards those new opportunities and these new product portfolios. And I think in this sector that we see is quite a sort of some people can see as the older world of of the UK economy actually to be able to see that people seeing the kind of new opportunities for new products was actually really exciting and motivating for me.

Michael: And finally I'll bring Sharon in at this point, Sharon, you didn't didn't have to do the hard yards of pulling together. I don't think the the report itself, but certainly very interested in what you see, well, are you feeling optimistic about the year ahead, first of all? And what do you think are the main opportunities, not least with you know the air of positivity that is coming through in the report? Do you share that?

Sharon Lane: Yeah, thank you Michael and I run manufacturing SME here on Teesside and I also chair the Regional Advisory Board for the North East for Make UK so I'm lucky that I do get that quarterly input from manufacturers in the North East about how they're finding things, which is which is really helpful to then read the report and see what the national picture is in terms of this data.

And I agree with James I think there's a sense that we've we've we've bounced, you know, we've if we're still here and we've managed to ride out the last five years, then we've been resilient enough and we've trimmed the fat from our businesses and we're ready to grow. ome of us have spent quite a long time through COVID not being able to make those investments and make those changes.

And we've had a long time to think about what we want to do and to get those plans in place. So I feel like that coiled spring that we had after COVID is still going is still we're ready. And of course, we can only feel optimistic about the fact that we're in a general election year. So we're hopeful to hear some good news in terms of government in the Spring budget.

And see, I still think people might be holding on for that. I think that, you know, quite a few owner managers are waiting still to hear what comes out of the Spring budget before they make those long term decisions. But yeah, certainly a lot to be hopeful about, I think.

Michael: The tone is striking there, I think, isn't it? Compared to where we were a year ago and certainly the findings from a year ago. But there's there's a lot more positivity. I mean,even James you were saying that that there is an air of confidence that is finally superseding the uncertainty. And I think that that is true not just in the sector, but certainly I think in my role, I hear about that in in in other sectors as well.

And just just to dive that a little bit deeper into some of some of these specific findings in the report. I mean, one of the key themes, obviously is that one of competitiveness and confidence in the sector and the report finds, you know, that manufacturers confidence for the year ahead does look much improved from last year.

And I suppose as well, it strikes me, find that the proportion of firms that consider the UK as a competitive place to manufacture has improved from something like 31% last year to more than half this year, which is really quite, quite, quite a pronounced leap. James, I know you mentioned the the impact of interest rates and it's looking like we've reached sort of the top in terms of interest rates and it now being a question of in many people's minds of how quickly the bank begins to cut those or how quickly, you know, inflationary pressure begins to ease throughout the supply chain.

But on top of that, is there anything else that has do you think, driven this improvement in expectations for the sector? Because it's it's not as if the last year had been plain sailing. So it would be interesting to understand a little bit more about why people are feeling a bit more confident.

James: Well, I'm going to say something that's certainly going to sort of jinx it.

So I suggest everyone listening crosses their fingers and certainly the panel crosses their fingers. At the moment for the for the manufacturing sector that there isn't currently. And it's been it's been shock after shock sort of specific sector shock, whether it be of course, it affects other sectors apart from the manufacturing sector but it’s a significant issue, let's say the energy crisis, we still had the the acute depths of the labour labour shortage issues that still goes on with the skills shortage.

But just at the moment, the sector is short one of these shocks. The thing that keeps being said is perhaps over the two years the sector has been spinning plates and just perhaps the turn of the second half of last year, there wasn't something to spin plates about. It just seemed at the minute businesses, you know, we had the high interest rate environment, sure, but there wasn't a sudden, and this is where I'm going to say I'm going to jinx it, here wasn't that Suez Canal at the time. There wasn't the energy hike inflation. There wasn't the the serious lead times from from Eastern imports and so on, so forth. So just for that brief moment, it was business as normal and it's been that way for a little bit.

However, business performance hasn't been fantastic, but there hasn't been a headline grabbing, grabbing business shock incident in that period. Now, of course, I'm saying that because we're seeing, you know, sniffs of that out with potential shipping disruption, perhaps might get worse in the couple coming months. But I think what's important to note is that we are short of that shock and that's allowing the sector to breathe.

It's something that we talked about a fair amount in the in the in the third quarter,Q3 of last year. Unfortunately, the fundamental drivers of orders demand is down in the sectors that led to actually quite disappointing historic performance in Q3 and Q4 in terms of output and orders. However, in terms of frictions to trade, our membership reported that these were quite low, especially when we consider only the period of the past three or four years where the sector, ever since coming out the tail end of the pandemic, has been hit with the one sort of sector crisis after, after another.

And of course, despite a lot of these costs perceiving, I'm not saying these have gone away by index values, the production input costs, energy costs, labour costs are all a lot higher and far above average inflation than they were two or three years ago. And so this is where we are getting to that point, where these challenges still exist. But they now have been baked into the sector. The sector's got somewhat used to them, for lack of a better word. And now the air of there's nothing immediately too concerning on the horizon. That's going to suddenly drag down demand and output beyond the general suppressive effect of the base rate that's allowing that confidence to grow. But let's let's hope and let’s really cross our fingers because we haven't had much luck as a sector over the past three years of not of not seeing that shock coming over the hill.

Michael: So if we all stays smooth sailing, we're definitely on the slow, slow and steady, you know, growth at what pace is another question. But in 2024.
Slow and slow and steady by the by contrast to the last six or seven years now might, might, might feel just fine, I suspect for some people. Cara, just just to turn to you, then I'm putting some of that in the context of the findings of the report around, particularly around the UK's competitiveness relative in the first place to the EU and those specific markets like Germany and France that I mentioned at the outset, but also to the likes of India, China, the US.

I mean, how do you sort of read those findings? And clearly, you know, some of the positivity is relative to no results last year, relative to the EU. So I just wondered what you were sort of standing back from that what your impression of the UK competitiveness is against, against those various different markets?

Cara: Yeah, I think this is that kind of interesting point that came up in the report for me because you have to sort of like get a get underneath that because it it's obviously factually that's what the 200 plus manufacturers have told us.

And and I suppose that the particularly the one for Europe was interesting to me because that is a change, as you say. I think you put it in the context of this time last year or then the last quarter of 2022, when we're asking this last time. And I think, you know, we were in a very different period of uncertainty.Germany's obviously had in particular that cost of energy and kind of how they've responded to that.

But I think the UK, the UK knows a lot about the European markets. If you look at the report, 74% is still kind of, Europe is our biggest export opportunity and where our goods go. So I think certainly in the client base that I have, they would say they're being able to compete well with European products and they're beating them and selling into that.

So I think that is the positivity there, but it is still kind of intriguing to me and maybe it'll come up in the Q&A about what people are kind of really feeling about that competitive edge to Europe and really interested in what Sharon thinks there as well. Now I suppose the bigger piece as you, as you rightly point to, is the US and China and India that is still seen through this report as a, you know, big competitor and competitors.

And actually what the US is doing is fascinating in terms of their policy changes to taxation and on-shoring, and that is something that certainly comes up in a lot of our client conversations, a real interest, you know, in fact, actually, if I look at that number, for us, the 23%, 24% looking at on-shoring and reshoring here, too.

So actually they are really looking at the US and thinking, what's happening over there? How can we do some of that as well? But that has to remain a kind of big competitor, and hopefully as the election happens here, as we get government policy more firm, it'll be interesting to see how we kind of help manufacturers with that challenge.

Michael: So we will come to elections in a moment because we're about to get a question about that from the audience and it's something I think we want to discuss. But Sharon, just to pick up on one of the points, Cara made there, I mean, there is more positivity coming through in the EU in regarding sort of competitiveness relative to the EU in the survey findings. Is that something you share or would you have a note of caution regarding regarding, you know, assuming that that trend is necessarily going to continue? I'd just be intrigued what you are finding in your own business.

Sharon: I would be cautious about that. I think that we do we do struggle to compete in terms of our costs, particularly with our energy costs. Um but then we all have the same problems, I think, in terms of skills shortages as well, and wage inflation and material prices. Um, but I think, I think it is a real concern. And I think that possibly the danger in terms of as trade as well is that we assume because Brexit has happened, that that is the impact of that is baked in, whereas in reality because the wheels have turned so slowly in terms of implementing the various changes in legislation and the changes in the way that we're going to trade, I think that some of the tail end could really start to affect anybody that's that's trading with the EU as well. The share that that may be particularly small businesses might not be aware of those changes that are coming in as well.

So it's not that it's finished and if we're okay, then we're going to be okay. It's that actually, things have been delayed and we might find that, coming into this year we start to have some real problems trading that might affect our competitiveness because ultimately, if the customs and and the shipping and everything else is a hassle and is expensive, that's going to make us much less competitive.

Michael: Absolutely. And of the other one of the one of the other you mentioned the Brexit uncertainty. But turning to more immediate political matters, I suppose that there is also the question of of an election, which I think you've all alluded to earlier in our conversation. And maybe to come to you first on this, James, that the we've talked about uncertainty and what that brings.

I mean, an election normally brings uncertainty, and yet we don't necessarily hear that trepidation from from everyone when we talk about what they expect in the year ahead. I mean, how in your experience, is the sector thinking about this election? Is it going to actually be a chance to deliver certainty, sort of slightly paradoxically, rather than another last year? I'm intrigued to know what you what you're thinking on that front.

James: It's a very good question. I think particularly in the context of this report, it's important for us to sort of define political uncertainty because, of course, that's what's so impacted the last edition of this report so negatively. But of course, when I say to find a political uncertainty, I mean, there will be, of course, be political uncertainty as we move towards the general election.

But I'll talk about how that's perhaps not a bad thing for the sector, but political uncertainty, I suppose, within the incumbent government is what really damaged the confidence and prospects for the sector at the end of last year because it sounds like I'm going to be contradictory, but I'm not, because the political uncertainty as we move towards a general election and as parties campaign really is at the end, despite, you know, a little bit of uncertainty around who's going to do what really only is good for the sector because the there'll be the campaigning will be on which party and which which government will have the policies that the sector wants to deliver.

And that is, of course, becoming more centre stage than it has been even three three or four years ago. The manufacturing sector is getting a lot more traction as a as a policy, as a policy focus area, at least from the current government, and indeed said to be so from the opposition party as well. And in the last budget we had significant manufacturing sector specific policies which certainly helped bolster that confidence and that was seen most notably in investment zones and in the full expensing, though of course these aren't explicit to the manufacturing sector, but it is the manufacturing sector that will benefit the most from out of out of other sectors in the economy.

And so going forwards into whether that general election happens this year or not, as that campaigning ramps up, the concerns of the sector will be form part of that battleground. Now, of course, the ultimate prize, and it's something that Makehas been long campaigning for, is will there be an industrial strategy and will one of the parties run with an industrial strategy as as a campaigning platform?

If so, that will bolster confidence. And even if we don't necessarily achieve one when the election comes to a close, that conversation being had out in public, in open and having the concerns of the manufacturing sector on what the future prosperity of the sector looks like will will only be a boom for the sector in the medium to long term.

Michael: Sharon, I'd be interested in going to come to you on this. I mean, in terms of, you know, timing, timing of investments, thinking about the year ahead to the years ahead, how important or not is is the election that we're expecting to have in the next 12 months, how important is that as a factor in your in your thinking?

Sharon: I think it's the it's the spring budget that's the factor for me because, you know, we are hoping that that will be a nice, you know, good news budget and and that it might contain some of the the changes that Make UK and others have been campaigning for and maybe rather than the election itself. I think the fact that we've got the presidential election as well and we do have the certainty now about the cost of money with interest rates settling, but we don't have that with the with the exchange rate.

And you know, that going back to what we talked about earlier in terms of our ability to compete, you know, that has a huge impact on us. It seems to get it seems to get very little coverage last year in the media about about the exchange rate in terms of confidence for investments. We still have very long lead time supply and equipment that hasn't really come back to pre-COVID in terms of availability.

And if you even if you were confident now that you had demand for something and you were ready to invest in that plan, you could easily be looking at nine, 12 months before delivery of something. So you've got to know what the price of money is going to be then and you won't get a fixed shipping cost because that could be anything in nine months time and you won't know if you're going to have the skills, the people, to be able to operate that plant and and equipment.

So I think there's still that that reluctance to make those big investments. Um, but ultimately we don't know as I was saying earlier, we don't want to just do nothing. So we've spent quite a few years battling those fires and we're now ready, ready to go. So I think it's it's for me, it's wait till the spring budget, let's see what um, what the policies are, and certainly from my point of view, I've already made those decisions at the end of last year and made those investments. The plant that's that's coming in at the end of this year. So I, I've been confident enough to do that and placed those orders.

Michael: And we will move on to talking about some of those challenges, Sharon in just a moment, but you mentioned the sort of the international overlay on all of this. You mentioned the presidential election coming in the US and one of our audience members has picked up on this and sort of what is posing the question, which I might come to you with, Cara, which is to what extent is the economic outlook for 2024 actually taking into account the fact that something like 40% of the world's population has a general election coming this year?

I mean, is it there's a huge number of different things and moving parts that that can change, this this this survey gives us a useful snapshot. But what to your mind are the big questions that perhaps we need to think more about in the context of the huge political upheaval that we might potentially see, not just in the UK or even on this continent, but also in the US, and we saw Taiwan obviously in recent days as well.

Cara: Yeah, I think Michael, it's it's huge on the minds I suppose of everyone that feels, you know, until I sort of it was often over Christmas I saw the stats around how many people in the world would be voting in the coming year. And I think for me it really comes in to that competitiveness and where we are in that uncertainty.

So, you know, none of us can predict. And we've seen obviously the shocks over the last five years beyond that and how much it does have. I think to Sharon's point, if you kind of if you can piece it back down to things that we can do something about, you know, I think one of the sad things of me in the report was the, you know, 49% of investment decisions are held back until more certainty.

And I think that's that piece for me about when when does business feels certainty. So where is that kind of line? And that will obviously be different for each business. But I just thought that was a huge statistic to feel, you know, when do we ever feel certain, And particularly over the last few years for the sector, you know, it has had to cope with a lot of different things.

And as you come into this year of those elections, I can’t therefore sit on this webinar and say, yeah, it's definitely going to get going to have that certainty. And I think for me therefore really getting, you know, Sharon's obviously said she's had to make those decisions and I think it's therefore helping our sector with what are those kind of - none of them are going to be no risk decisions, but actually, what are those decisions that step by step can build the business for the future and make it future proof. And I think some of that comes into data. Some of it comes into the digitalisation. And, you know, as we kind of get policy around that, how do we help our SME community really put their kind of their investments into the right areas? Because technology is also changing so rapidly. It's very hard to make those type of decisions.

Michael: Absolutely. And look, in terms of in terms of and you've both already just sort of segwayed nicely into the next topic that we planned to talk about, which was the challenges for the sector. I mean, just just to give our audience again, some more of a sense of some of the key findings from the survey in this in this area.

And more than half of respondents still see risks from increased energy costs, which I think was was the biggest threat identified. And that certainly remains looming large over the sector, I think. And but that was followed by political instability, which we've we've talked a bit about. And then more than two thirds of respondents were still seeing supply chain disruption and a similar number sort of saying lack of access to domestic skills and as a particular risk which which we might want to talk a little bit more about.

And before we go to maybe a specific risk, though, Cara to just come back to you again. The companies and businesses trying to navigate those risks and sort of avoid those pitfalls, but while not pausing activity and getting on with with those sort of trying to realise those opportunities which we've spoken about a little bit already. How do you think businesses can best go about balancing those those sort of competing objectives, You know, the defensive in terms of avoiding the pitfalls, but also trying to be forward looking, trying to trying to grow, trying to expand Um what what what are you seeing in that regard and how are you helping business, I suppose, to to to balance those two objectives?

Cara: Yeah, I think I think for me it comes down to kind of really strategic planning around the board table. So kind of that whole piece of everybody having their own view working together. So collaboration round the board, bringing in kind of proper budgeting, proper control. Costs and energy costs are absolutely still front and centre of our clients’ minds and probably able to budget them slightly easier this year. Doesn't mean they're any better, but they're easier to put those in. I think it's therefore about placing the decisions on new investment, placing decisions on new products and new markets, really going after those export markets. And then for us, I think really the key piece that's coming up in conversations is on digitalisation and data in the cloud.

Lots of our, kind of, help is now is with transforming businesses because with data, with information then business can make those really considered decisions. And that's something that I really really want to encourage. I think I've said probably on this webinar before that I feel like maybe five years ago and I was guilty of this as well, we were maybe making it too complicated.

It’s like you had to kind of go and do a big system. Actually, the technology moved so that, you know, some of this can be in a stepping stone way, kind of small steps to get to to get a business really focused on that. And I think the key thing for me is the benefit that that has to increase productivity, the benefit it has to customer satisfaction, customer service, where you can really kind of have that dashboard in front of you, of what the business is doing and how you can kind of influence as a board and so those are the things that are coming up Michael in conversations that as we see it, for how people are trying to manage that risk and those challenges that are thrown at them.

Michael: Sharon I might ask you two questions in one go here. I mean, one are you are you finding it easier to sort of measure what you need to do with the types of data tools and that that that Cara talks about that? Or is it still a case, in your experience that it remains quite clunky and complicated in many cases. And then that the second thing I want to ask you about was just that that finding in relation to sort of the access to labour is is is an interesting one. I think, you know, in many, many industries there has been huge tightness, to put it mildly in the labour market in the UK in the last couple of years. And I'm just wondering whether you're beginning to see that ease or whether you think that that how you see that evolving, I suppose over the next 12 months or so?

Sharon: Yeah. Um, being able to access data and measure data so that we can manage it like many of those we want this year, 2024 to be the year, and I never know, is it digitisation or digitalisation?

Michael: As someone who has to write that word a couple of times a week, I still don't know either. So and if if I write it one way, a sub-editor will change it to the other one. So sure as anything. So you're not alone on that one bit.

Sharon: But yeah, it's fantastic that the report showing so many wanting to engage with this. And I do think that it's getting a lot easier and Make smarter is being rolled out again, certainly in our region, which is fantastic. We've accessed that before, we're going to be doing it again. So it's becoming easier to find out how to do things or to find people who can help you to do things. And so we we will definitely do that.

I mean, there's a really good overlap between that and net zero, because if you can't measure what you're doing in terms of your, um your energy use and your greenhouse gas emission, then you can't manage that down either. So I think that that's all connected for us in terms of our net zero strategy and our digital digital strategy. And then in terms of labour, on the positive side, I think a lot more SMEs have taken the initiative to develop their on site training facilities and I'm hearing much more about and even quite small businesses setting up a training academy, developing bespoke courses and focusing on how they can upskill up their people. And that's shown in the in the report in Chart 8, it's about upskilling or retraining, existing staff being the number one investment there.

And the disappointing thing is that apprenticeships is right down there at number eight and last year that was at number four in last year's report, so the proportion of people who've identified that as a priority investment in apprenticeships is actually gone down from 41% to 36.6, which is a real shame. We know the reasons around that. And again, Make UK has been campaigning for changes in apprenticeship levy, but nevertheless that is, you know, I think that's a disappointing drop and, and then also the other big uncertainty for us around skills is what's going to happen in terms of being able to attract overseas candidates.

And I think just the general tone of government at the moment, that's the one that really maybe that would shift with a different general election outcome. I'm not sure one way or the other because and the tone at the moment isn't particularly a welcoming one. And we've seen this week that even international students coming into our universities are down, enrollments are down 20% approximately for the next academic year.

And even that affects us because there are interns, there are graduate recruitments possibly, you know, so, you know, the vacancies have been pretty steady at about 70 odd thousand, I think in the UK manufacturing sector, they've gone down slightly, but I don't think that's because they're being filled. I think it's just that companies are just actually don't have as many vacancies maybe and it's still been a big problem.

Michael: One of our readers has written into one of our listeners, our viewers has written in to assure us that is industrial digitalisation. So we'll take that as read and go with digitalisation. But James, just just with your economist hat on, just to pick up on one of the points that Sharon made there at the end, which I think is very much in the in the public discourse and in the public side, which is the kind of not just domestic skills, but also international recruitment.

What what what what what pressure is that putting on the sector and is the sort of uncertainty over the government's current approach or its seeming, you know, and friendliness, if that's the right word, to to economic immigration or economic migration? To what extent is that a factor for the industry right now? And could this sort of thing that might ease substantially after an election?

James: Yeah, both that both are significant, but I suppose it's important not to always conflate these concerns because one's a domestic skills issue, i.e. that we, you know, we're not breeding the skills that we need in 15, 20 years time and that's been the case for 20 years. So that's that's one challenge. And the other challenge is, of course, is that more transient skilled labour from overseas.

Sharon very very well quoted on the on the vacancies figures. As a as a ratio, I think it's important just to know it's a very revealing highlight that compared to the long run average the level of vacancies in the manufacturing sector and I do love the statistics, apologies if people have heard this before, but it is about 50% hotter than the long run average.

So what I mean by that is that over the past, it's the past 20 years, pre-COVID, the average resting level of vacancies in the manufacturing sector is 50% higher than that as of today. Right. and so that that illustrates that ever since the pandemic , it's been ever since the tail end of the pandemic, it's gone from, you know, 100% as hot to 50% as hot.

But we're so far away from that now. And this seems to be the new normal that there has been a loss of that of that workforce within the sector, whether for a multitude of reasons. We could talk all day about whether there be a retirement, long term sickness, proclivity towards working inside plants, so on and so forth. But the crux of the matter is, and that's been highlighted particularly in the first half of last year, is just how much of an output limiter this was for UK manufacturing businesses.

So if it wasn't the raw materials or raw input or the long lead times, what was directly limiting their ability to prosper was lack of boots on the ground and not necessarily boots on the shop floor, but whether that be skilled engineers, so and so forth. But that was a direct correlation between the sector's inability to operate to its maximum potential and just not being able to get the staff effectively for love nor money. Now, as I've said, that's eased somewhat with the vacancies coming down. And and Sharon raises a very interesting point. It's very hard to measure when we see these vacancies come down within the sectoral ONS data. How much of this is vacancies being successfully filled and how much of this is vacancies being closed because they're now surplus to requirements?

We saw at the turn of last year, at about the time of the last Executive Survey, you saw a huge swathe of vacancies closed down because they were surplus to requirements because the sector was moving into a more cautious footing. I saw it a little bit in the third quarter of this year. That's when confidence took a rate of last year when confidence really took a dip.

There's effectively, actually for a very short period, we didn't really notice, didn't make it out, the mainstream media. But there was effectively a hiring freeze throughout industry in the third quarter of the year. People panicked about what the wage bill would look like with the onslaught of costs, that has cooled off since then.

Michael: And with with I'm conscious of time we've spent a lot of time talking about the challenges, but maybe we should spend some time talking about the opportunities as well, because there are some interesting findings in the report and I can see that some of the messaging in the question box that they haven't actually seen a copy of the report yet.

I'm sure that it will. I think it is publicly available, but I'm sure that will be available afterwards as well. And rather than recite all of the findings that you I think we will continue sort of to pick and choose things. But but certainly people will will have copies afterwards and be able to be able to pick through the findings in more detail themselves in their own time.

But just to pick up on some of those opportunities that that do come out in the survey findings. I mean, one of one of the ones that struck me was that more than half of manufacturers have responded say they saw new opportunities. So opportunities in new products excuse me and more than a quarter were saying that they were going to expand into new markets.

And and I suppose another thing worth highlighting there is that similarly just over a quarter said they saw opportunities to expand because of net zero opportunities and and what that presents for them. Another theme and we have touched on this already Sharon and Cara is that that idea of digitalisation and I think the survey found that something like 70% of respondents said that the digitalisation of their operations was going to boost productivity.

Cara, I come to you first on that. Is that acceleration of digital adoption something that you're seeing? And is it something that's going to pick up yet further in the manufacturing sector over the next 12, 12 to 24 months? And are there any specific areas in which you would use maybe seeing it and in particular particular types of technology or specific parts of the industry where it is being adopted more aggressively, perhaps?

Cara: I think, yeah, it's definitely now becoming something that is kind of normal and I would say we kind of spent a good amount of time over the years sort of talking about digitalisation and actually that's now happening. And I think some of that is, as Sharon said, the cost to do so is coming down, the different technologies that people have available.

And actually I think as well, it's a you know, one of the things that's great about working with the manufacturing sector is that people do learn from each other. So there is sort of open opportunities in some of the regions to really kind of work together with Make UK and work together with the regional communities to to see what other people have been doing.

And I think that's really something that actually what I find with my clients is if they've if they've built a new line or they've built a new facility and they've put that kind of new technology in, they very quickly come back to the old and gone, actually we need to do this more quickly. We've seen the benefit to productivity and I you know, it's not easy and it does take, you know, day job time, as it were.

You know, people sort of go actually, you know, there is an investment. There is a time investment. But I think it's very motivating. And that's something that we're seeing kind of clients really get very behind very quickly because they can see the opportunity, they can measure it. And I think as we go into the competitiveness with with around the world, you know, everybody is on this journey and we do need to make sure that our our whole manufacturing base in the UK is really forefront of this.

And we are at the forefront, you know, actually in terms of logistics, RFID, you know, there's been loads of reports done on actually where we are at the forefront. We also have a huge amount of engineering capability and being able to turn that to kind of new products in new markets and new sectors that are being generated from sort of net zero and new energy world. I think we're very well-placed for and it's about kind of really being quick to market with that and using our engineering skills.

Michael: And Cara I think I might direct this one to you as well, but I'm interested in this, this sort of positivity around around exports and, you know, and obviously exports are great for the company the individual companies that are exporting is it's allowing them to expand into new markets.

But some of that positivity that we're seeing in the reports potentially also has benefits for for the UK economy as a whole, its balance sheet, its influence internationally. And I wonder, is there anything stakeholders outside of the industry but in your industry of professional services, others than the government sector is, is there any is there a wider implication of that finding, do you think? And is there anything you know that the people in positions like yours and you know, the advisory capacity or other external stakeholders can be doing more of and to to sort of capitalise I suppose, on that positivity and that opportunity that firms clearly do see for expansion in the coming year.

Cara: Yeah, no, I think it's, you know, the more I've worked in the sector and I have done now for a good number of years is actually I do still think we underplay the sector in this country. You know, the UK as it says the report you know, is the 8th largest manufacturing economy by value of output. That's kind of gone in the right direction by one place this year. And I think, you know, if we speak in our kind of communities and in our economy, is that what we always give it benefit for? Yes, the UK is a very highly qualified services industry as well, but actually that balance and how we bring that into the world and I think the, you know, looking back at where want to manufacture, one of the things that comes in the report is it's very, very low that anybody's thinking about manufacturing outside of the country and switching manufacturing from the UK internationally.

And that's a really interesting finding. And obviously that has been kind of going that way for many years now, but actually building up our communities um and providing jobs for the future and new skills. And I think as we kind of appeal to our children and appeal to kind of the future, is this an industry and a sector that people want to work in?

And actually, I think as you make that about the new economy, you make that about net zero, the green economy and all the products that consumers or business will need. And, you know, I think that can be very exciting. And it certainly I feel like part of my job and our firm's job is to kind of really promote that and be part of what it does mean for the UK economy, of which, you know, we are competing in a global world. We need growth.

Michael: And I suppose we should talk when we talk about opportunities and challenges. I mean, some of those things that are challenges like energy costs and clearly that's something that, you know, the slim majority, but a majority nonetheless of respondents to to the survey, you know, are clearly very concerned about. I mean, is the biggest challenge identified in the survey findings, and that said we're in a world where in 12 months time, potentially those energy costs look quite different and are a little bit more benign than than what they are at the moment.

And there's so many external factors at play that that I suppose if any of us knew with any certainty we wouldn't be sitting here, would be we'd be we'd be trading energy and making a lot more money, probably. But Sharon I might come to you with this. I mean, what what difference just just to the hypothetical where the range of energy prices, which could go significantly up or down, I suppose, at any given moment.

I mean, do you think about that often in your business and what would it mean and what would sort of be the biggest immediate impact be if we were to see a significant change at some point over the next sort of 12 months?

Sharon: Well, it would be horrendous when we're a high energy user, but we're one of those businesses that uses an awful lot of electricity, but not enough to be classed as energy intensive to get the breaks from that.

And there's a lot of us in that in that bracket. And and we were really lucky in that um the timing of our long term contracts fell so that we didn't get too much of a horrendous hit that would, you know, that would just make our business model potentially unsustainable. And this was the awful thing I think about the energy crisis was the businesses that were really obviously affected.

It was just pure chance whether your electricity contract happened to expire in October 2021 or not, you know, and that was really quite difficult, I think. And then some people were sitting there really smugly, like the people who have on their mortgage deals as well. And then, you know, it's just chance, isn't it? And it's not it's not a great level playing field, I think, for UK manufacturing when that happened. It would have a big impact on us if it were to happen.

We have been investing in renewable energy, so we invested last year in a first stage of solar panels which now produce 7% of our annual energy use, and we've got a second round of solar investment to go this year that will give us a further 7%. And we're doing all we can to actually reduce our energy use as well.

And we know we've been able to allocate that capital investment. I still think government policy to actually help with this and put a little bit of funding to SMEs to take the edge off these sorts of investments would make a huge difference and ultimately would make, you know, the manufacturing supply chains, critical supply chain and much more, much more resilient, you know, and it's in our interests to have these these SMEs here, you know.

So I, I would have liked to see a little bit of grant funding there or some thing so that when you do choose to invest in renewables, you know, you've got a bit of help that I think that make a big difference.

Michael: And I suspect that that would be one of those issues that is going to be spotlighted in the coming months as political parties come around looking, looking for support and in terms of intensifying their efforts in that regard.

James, just just to come to you on that same theme, really, but both energy but but also other challenges that are out there. I mean, is there anything that at the moment perhaps is looking a bit scary and difficult for the sector that potentially, you know, might begin to look begin to unwind over the next year? I might begin to to to ease and a little bit and become something of an opportunity if that's the right phrase.

I mean, you've already mentioned the prospects, I suppose, of easing inflation in these interest rates and which which I suppose feeds into that as well. But is anything else there that you, you'd pick out.

James: Yeah, absolutely. I think rather rather conveniently despite it being, you know, a little worrying, a little sad, is that if anything, over the past four years, at least in my time of watching the sector since it was during the pandemic, is it's the it's the challenges that have made the sector innovate rather rapidly.

And it's generated that that resilience that we talk about in UK manufacturing. I mean, you mentioned the example of, you know, energy costs and perhaps that's the freshest one in our minds. I don't I don't think I've visited the UK manufacturer in the past six months that hasn't consciously, even if they've never touched something like this before, consciously overhauled their entire plant with looking at where those cost centres are, where that efficiency is.

But the important point about all of this is, is that fine, that's a great step to take to minimise your exposure to energy bills at the moment, but that learning goes forward, that energy efficiency goes forward for the future. So there is really a net benefit here. So in five years time, manufacturers are going to be operating at more efficient levels because of the unfortunate trial by fire and forcing through extreme energy costs, than perhaps it would have otherwise been the case.

And that's not saying I welcome these heightened shocks and costs. However, there are, there are silver linings to the reactions that the sector has had by installing energy efficiency equipment, at record breaking pace. With labour as well. The same thing during, you know, businesses are having to find ways to become more lean and get, you know, effectively leverage the current amount of staff, they have better to increase output.

And the fact that we have seen that although this kind of stuff isn't captured in national statistics, levels and productivity, but by the fact, that many businesses throughout the loss of during during COVID and indeed during times of lowered workforce, managed to maintain output levels higher than proportional to the workers lost, which in effect generates that productivity enhancement.

Whether or not that's carried on for the rest of the year is another is another concern. And again, it's supply chain. I'll just make a final point about supply chain as it’s a common one and perhaps perhaps the most the most threatening one in the coming year, at least it's the most topical on the news, about is there going to be some sort of shipping disruption that we're going to expect to come to our shores?

And that's really where the sector has innovated, I should say, where before the idea is if you had your one supply, and that's what at the time of the pandemic caused such disarray as suppliers went down and then whole supply chains fell over, now the sector is far more atuned and better to be ready, and insured against such singular disruptions.

Having diversified supply chains,different stockpiling strategies for critical products and so forth, making sure that every point of their value chain is far more insured and resilient against a single point of failure. So I do think that this is quite a bevy of stuff that we could talk about all day. But these are all, of course, opportunities that have come out of the middle, borne out of the challenges that the sector has faced in only only the past four years.

So I am quietly confident that if and when, hope not anytime soon, the next unknown time comes along, the sector will be resilient and it will be better prepared for it than certainly it was any time in the previous 4 to 5 years and indeed five years ago.

Michael: Sure. And we have we have been having a steady stream of questions coming in from from from our audience throughout the show.

Sharon I can see you've been pretty active in answering some of them in writing, but of this couple of them that we might hopefully still be able to squeeze in before the end. And one of those is in relation to this theme of of the digital theme, and I might come to you on this, Cara, the survey, I think, has found that close to half or certainly more than 2/5 of businesses said that cyber security was a priority area for investment.

And I think Sharon has, has pointed out, I haven't checked this, but I'm sure she's right that it wasn't even featured as a priority in last year's report. That to me is really interesting. From speaking to your colleagues in PwC, who obviously is focused on other industries as well and sectors, do you think that the level of readiness in that respect is is somehow less in the manufacturing sector, or is this just a realisation that as it's all sectors in the last year, because it's been it's been quite a high profile issue clearly, and has moved up boardroom agendas very, very rapidly?

Cara: Yeah, I think it's across all sectors. So, you know, we have kind of a very big practice focused on helping clients, cyber security and, you know, it's such an important piece that, as you say, has kind of really risen up in boardrooms as there's been kind of media about what has happened and actually, you know, unfortunately, businesses themselves have suffered. I think as well,

I suppose in the in the manufacturing community, it's that piece of it's not just about your kind of laptop and your computer that you can see, it's the the operational aspects of that. And actually, you know, kind of where there is systems, kind of where at the very edge of your kind of operation, that could be penetrated.

And I think what we're seeing is boardrooms and and directors and shareholders very aware of that and therefore really wanting to protect as best they can. And that is changing all the time. So it is just really keeping on top of that. And as you say, it comes through the report massively and I think as well for the supplier community, you know, we're seeing larger customers asking their supply chain about that.

And as James said, one of the things that's definitely changed in our industry over the last well since probably since Brexit was actually a lot more questions from your customers, you know, into we used we asked kind of preparations for Brexit, we ask about preparations for net zero and kind of all of the reporting coming in to large companies down the supply chain.

And actually that's now something in terms of cyber. So actually being asked by your customers well, and therefore it's really placing its emphasis into smaller and medium sized enterprises around what is their strategy for that. And again, some of that is because the cost of how you can do that is changing, but definitely a huge aspect of importance and kind of threats in a different and a different way to a physical threat.

Michael: And there has been also some questions in from from the audience around costs. And these take different forms so I might try and couple a couple of them together and summarise as focused on the the rise in the minimum wage and the effect that that can have on on businesses. But also I suppose there's just been general wage inflation and cost of living payments and so on that have become well, I think after two years of market, is it too soon to say the norm?

But there are many, many employers that make cost of living sort of one off payments or increases over the last couple of years to try and help staff. But equally that's being done at a time when businesses are themselves clearly under pressure. And James, I might come to you on this one and I'll come to Sharon as well if time.

But James, just just on that, I mean, what what can we expect in terms of wage pressure in the next in the next year? I mean, the national statistics across sectors, statistics certainly suggests that that's easing, though by no means back to a sort of pre pre sort of the last couple of years surge level. What what do you think you know, people running businesses can expect in the next year..

James: Yeah. So we'll be pretty confident that they'll go hand in hand, which is not exactly an amazing insight but it is what the the embassy, the Bank of England will be looking at very, very thoroughly. It is fundamentally what will drive that decision to start dropping those rates. It'll be when they're satisfied that the the average weekly earnings are how they want to measure it.

The average wage increase, as average wage changes within the UK have come to a pause and at that point, or they've come slow enough, that they're satisfied. And at that point that is when they will start dropping the rate. So you can sort of reverse engineer that a little bit and say we're unlikely to see an acceleration in labour costs at the moment.

They will continue to grow somewhat, but the rate of that change is not going to be anything like we've seen over the past year and indeed at the tail end of the year before that as well. So as as if we had me to look into my crystal ball, we'd be looking at, you know, we saw settlements as high as on average,

I think it was something like in the 6%, it's some 6.2 or something percent. We're going to see that come right down in the next year. But of course, the thing that gets missed when we talk about wages, of course, they’re sticky, it sounds very measly to say 1%, but if you had two years where they've been massively high, that in index values for that wage bill for that given business is much, much higher than it was only two years ago and far exceeding the average rates of inflation as well.

But I think it's certainly something that Sharon can answer, me as just a bean counter, to Sharon actually is a MD of a business will be far, far better places particularly to answer that. Such an interesting question on the minimum wage and the impact that has on on businesses.

Michael: And I would love to come to Sharon on that. But we have about 30 seconds left.

And so perhaps that is a good moment to say thank you to everyone who has tuned in. Thank you to all of you for your questions, which we've tried to intersperse throughout the conversation. If you have more either that I've failed to put to the panellists or which which strike you afterwards based on this conversation, as you read the report, I'm sure our panellists will will be will be happy to hear from you and obviously Make UK and PwC , who've done the research can can hopefully help as well.

And Cara, Sharon, James, thank you very much for a very interesting conversation, which I have the envious task of summarising in about 15 seconds. So I'm not even going to try other than to say clearly another very interesting year ahead for better or for worse. Some rays of sunlight coming through for this report, which I think is very welcome after a, particularly difficult couple of years, but a very unstable six, seven, eight years and that everyone has come through and and finally, just to say that the report is available online and I'm sure will be sent out afterwards, but otherwise, thank you very much for joining and that's all from us.

Thank you.