Manufacturing has seen a faster fall in output at the beginning of this year as Chancellor Rachel Reeves’ £40bn tax raid means businesses are “conserving funds”, research by the Confederation of British Industry (CBI) suggests.
The sector is seen as crucial to the Labour government’s growth plans as it pushes for a rise in technology and defence.
But a new survey by the CBI shows that less is getting produced across the country.
Output volumes fell more in the three months to March than in the quarter to last month, it found.
The CBI’s Industrial Trends Survey said only three out of 17 manufacturing sub-sectors escaped a fall in output.
Defence and aerospace were described as a “pockets of strength” by the CBI’s lead economist Ben Jones.
It reflects tense geopolitical pressures pushing Prime Minister Keir Starmer to change his focus to upgrading the UK’s military.
The government is set to raise investment in defence to 2.5 per cent of GDP by April 2025, with Chancellor Rachel Reeves likely to speak further about spending commitments at Wednesday’s Spring Statement.
But manufacturing orders on the whole have remained well below long-run averages despite slight improvements, according to the survey.
Jones said the sector remained “subdued” amid a gloomy economic outlook.
He outlined the impact of Reeves’ £20bn tax hike to national insurance contributions (NICs) on manufacturing.
“Manufacturers responding to the survey reported that customers are generally nervous about proceeding with capital investments,” Jones said.
“[They] are conserving funds ahead of upcoming increases to national insurance and minimum wages, leading orders to be cancelled or at least delayed until later in the year.”
“Next week’s Spring Statement and continuing challenges to the public finances means a lot of the growth the country needs will have to come from the private sector. But businesses need a reason to grow and invest in uncertain times.”
The survey follows an “ominous” report by the industry body Make UK, which suggested that output in the sector had fallen in the first quarter of the year for the first time in ten years.