THE UK economy is growing after a short and very shallow recession in the second half of 2023. With growth predictions of around 1.0% for 2024 and close to 2% next year, it’s important to recognise that these figures fall below the UK’s long-term trend growth rate of approximately 2.25% per annum.

In her recent Budget, the Chancellor increased taxes to partially fill the public finance gap left by the previous administration. Labour’s projected £22bn “black hole” partly stems from higher public sector wage settlements. However, the Office for Budget Responsibility (OBR) noted that certain information was not fully provided before the Spring budget.

Assessing the impact of the budget

The Chancellor also revised fiscal rules to aim for a balanced budget for current spending while allowing borrowing specifically for investment. At first glance, this adjustment is a positive step, enabling more government investment that may stimulate growth across this parliamentary term. However, the impact will depend on how effectively these investments are managed. Plans for productivity-enhancing projects remain somewhat vague, appearing to focus on maintaining existing capital rather than driving substantial new growth.

Financial markets have responded to these changes by slightly increasing bond yields, meaning that the government will face higher costs on additional borrowing. With inflation likely to exceed 2% by year’s end and no more interest rate cuts this year, the pace of further reductions in 2025 may slow compared to initial expectations.

The state of the UK’s industrial sector remains complex and varied. Aerospace appears poised for growth, thanks to the UK’s particular expertise in this field, while the automotive industry faces challenges due to its established focus on internal combustion engines at a time when electric propulsion is gaining ground. For our machinery sector, the prospect of reduced interest rates offers a potential lift that would be supported by weaker exchange rates for an export-reliant industry.

Increased costs for manufacturers

From the latest Budget, it’s noteworthy that the increase in Employer National Insurance Contributions, rising from 13.8% to 15%, could impact workforce expansion for many in the manufacturing sector. This increase, paired with the rise in the National Living Wage, presents added costs for businesses already navigating challenging conditions.

On a positive note, we welcome the commitment to an Industrial Strategy, with substantial funding directed toward aerospace, automotive, and life sciences. The allocation of £1bn for aerospace and £2bn for the automotive sector shows the government’s recognition of manufacturing’s importance. Additionally, the Corporate Tax Roadmap, which outlines corporation tax policy continuity and maintains full expensing and the Annual Investment Allowance, brings a level of stability that allows manufacturers to plan with confidence.

As the budget unfolds, we’ll be engaging constructively with policymakers, advocating for further clarity on industrial strategy and fiscal support. 

James Selka is CEO of the MTA

For more information: 

www.mta.org.uk

Tel: +44 (0) 20 7298 6400