Manufacturing, along with sectors like mining, electricity, water and waste management, and oil and gas extraction, significantly contributes to the UK economy, supporting a sizeable chunk of the workforce in the country.

With UK insolvency rates on the rise, the manufacturing sector ranks among the top five most affected. High inflation, soaring energy costs, low consumer confidence, and volatile supply chains exacerbate these challenges.

Historically, manufacturing is hit early and hard during recessions and economic downturns. Manufacturers with fixed assets, such as factories and equipment, are especially vulnerable to insolvency. But how has this sector fared in the recent economic scenario? Let’s take a look and find out.

Sector overview

The UK manufacturing sector had a strong start to the second half of 2024, with output and new orders growing, leading to the first workforce increase since September 2022. Manufacturing production rose for the third consecutive month in July, reaching its fastest expansion in nearly two and a half years. Companies attributed this growth to new product launches, efforts to clear work backlogs, and increased new business.

The recovery was broad-based, with production rising across consumer, intermediate, and investment goods industries. The seasonally adjusted S&P Global UK Manufacturing PMI™ reached a two-year high of 52.1 in July, up from 50.9 in June. The PMI has stayed above the neutral 50.0 mark for the past three months, the longest growth streak since mid-2022.

As manufacturers see increased orders and output, their revenues and cash flows are likely to improve, reducing the financial strain that can lead to insolvency. Signs of stabilisation in new export orders could help manufacturers tap into international markets, further supporting their financial stability.

However, there are still risks that could impact insolvency levels, including:

Persistent Supply Chain Issues: Ongoing supply chain disruptions could continue to pressure manufacturers, particularly those unable to pass on increased costs.

Inflation and Cost Management: Rising input prices and inflationary pressures might strain companies, especially smaller businesses with less pricing power.

Debt and Financial Management: Companies that accumulated significant debt during the pandemic may still struggle with repayments, which could lead to insolvencies despite improved market conditions.

While the positive trends in the UK manufacturing sector suggest a potential reduction in insolvency levels, particularly in the short term, it is crucial to remain cautious about ongoing challenges. This is true especially in a time like this when a new government has been elected, as their industrial strategy to drive growth and investment through domestic and international trade will impact the sector’s output directly. Additionally, the much awaited interest rate cuts could increase investment in the sector, but since there is no clarity on this front yet, insolvency levels could see a surge in the long run. 

Manufacturing News | Two Automotive Manufacturers File for Insolvency

Recaro Automotive, a well-known seat manufacturer that supplies to BMW, Ford, and Volkswagen, has filed for bankruptcy. The Esslingen District Court approved its self-administration on Monday. According to Autocar, workers were not informed of the bankruptcy plans, and the IG Metall trade union has called for transparency from Recaro’s management regarding the workers’ futures.

Recaro Automotive GmbH confirmed the insolvency filing on July 29, attributing it to significant financial difficulties from extreme price increases and the loss of a major contract. The company assured that insolvency payments would secure employees’ wages and salaries. Recaro plans to maintain full production during the insolvency proceedings to fulfil existing orders and new customer inquiries. Despite the financial distress, the company aims to strengthen its position locally and globally with judicial supervision and support from Baker Tilly.

Recaro, which also produces seats for the aviation and gaming industries, has been a significant player in the automotive space since its formation in the 1960s. It has built seats for high-performance vehicles like the Aston Martin Valkyrie, Audi R8, and Mustang Shelby GT350, as well as for racing cars.

Meanwhile, BBS, a legendary wheel manufacturer, has also filed for insolvency proceedings at the Rottweil Local Court. This is not the first financial crisis for BBS, which has faced similar issues four times since 2000. The company’s latest owner, ISH Management Services, acquired BBS Automotive GmbH in June before the insolvency filing. The IG Metall trade union was reportedly not informed in advance about this move.

Founded in 1970, BBS began as a plastic parts supplier before focusing on wheel design to enhance vehicle performance. Its iconic BBS RS three-piece wheel, introduced in 1983, remains one of the most recognizable aftermarket designs. BBS counts Porsche, BMW, and Ferrari among its clients and has a strong presence in the racing wheel market.

Manufacturing News | North West UK Leads Sustainable Manufacturing

The North West, once the heart of the industrial revolution, continues to thrive nearly 150 years later. Make UK’s latest outlook shows a significant rise in manufacturing output and orders heading into the year’s second half, with confidence in the region hitting its highest level since 2014. 

Despite short-term optimism, there are concerns about meeting net-zero targets, as manufacturing remains a high carbon-emitting sector. However, businesses like Rochdale-based Cohesion Piling and Bolton-based Till & Whitehead are making strides in sustainability through investments in efficient machinery and fostering green cultures. Support, such as the Clean Growth Finance Initiative, offers discounted lending for emission-reducing measures, helping manufacturers revamp operations and meet growing demand for sustainable products. This renewed optimism provides an opportunity for the North West to lead a new revolution in sustainable industry.

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