South West manufacturers amongst most optimistic as industry anticipates demand increase - FRP

Manufacturers in the South West are bullish about their prospects in the coming year despite ongoing cost pressures, according to new research by specialist business advisory firm FRP.

More than nine in 10 (96 per cent) of the manufacturers surveyed by FRP in the region are expecting to see demand for their products increase in the next 12 months – almost 10 percentage points higher than the national average of 87 per cent - while the vast majority (92 per cent) are confident that they will be able to continue trading over the same period.

Sector leaders are also convinced by the robustness of their supply chains, with the vast majority (84 per cent) also expecting suppliers to continue trading successfully through the year ahead.

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The research features in a new national FRP report, Against the Odds: The Future of UK Manufacturing, which points to a resilient sector that is looking to invest in advanced technologies to help stimulate new growth. FRP conducted a similar study at the end of 2022, which found that manufacturers were far less optimistic about their prospects.

Manufacturing is a key driver of growth in the South West, with the aerospace and defence sectors both having a particularly strong presence in the region. Notable manufacturers based in the area include Airbus Operations, Leonardo Helicopters and Cobham.

With inflation beginning to ease, almost nine in 10 (88 per cent) of FRP’s respondents in the South West – which range from SMEs to major employers – are planning to invest the same amount or more than they did last year. The top investment priority amongst respondents is to upsize operations, with just under a quarter (24 per cent) labelling both increasing production capacity and expanding logistics operations as their prime concerns.

Still, challenges remain – chiefly increasing material costs (33 per cent) and the cost of energy (31 per cent).

In response, manufacturers are planning a range of measures including increasing prices for customers and distributors (40 per cent), and – more positively – introducing or expanding the use of automation or AI in production (38 per cent). While just over one in 10 (13 per cent) say they are already using AI, machine learning or automation to its full potential, just over half (52 per cent) believe there is the potential to apply it more widely in their organisation.

Jonathan Dunn, Restructuring Advisory Partner at FRP’s Bristol office, said: “It’s hard to understate the importance of the manufacturing sector to the South West economy, and after what has been a difficult year for many businesses, it’s refreshing to see optimism beginning to return.

“The aerospace and defence sectors in particular have suffered from high energy costs and supply chain uncertainty. As we look ahead to 2024, these businesses will be welcoming the news that input and borrowing costs appears to be peaking or easing. However, with inflation remaining sticky, it’s important that business leaders channel their investment effectively to ensure they can capitalise on any anticipated increase in demand.”

“Looking at the results of this report, I’m confident that manufacturers have the plans in place to succeed, with a singular focus on their long-term growth and prosperity.

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“The results reflect what we are hearing anecdotally across FRP, as many of the supply issues firms reported last year have now been resolved to a large extent, with the most pressing concerns now on the demand side of the scale. We would hope to see at least a small recovery in demand as inflation eases and consumer confidence stabilises.

“While we await those changes to take effect, it’s heartening to see manufacturers exploring the potential of new technologies, including Artificial Intelligence. The cost of adopting AI can be high and include a lengthy payback period. But, for those that have access to funding, it is something they should be looking at to drive efficiencies and free up human resource.”