Gloomy times for manufacturers
Optimism levels among manufacturing businesses in Yorkshire has sunk to levels not seen since the height of the Covid 19 lockdowns, new research from West & North Yorkshire Chamber of Commerce has shown.
The Chamber’s latest Quarterly Economic Survey for the first quarter of 2025 shows the region’s producers reporting worsening sales performances both at home and internationally, with many firms in the sector resorting to job cuts and recruitment freezes.
Conversely, the region’s service sector reported an improved performance from the preceding quarter, with domestic sales, appetite for investment and confidence over future profitability all heading in the right direction and, in many cases, outperforming the rest of the country – sometimes by a significant margin.
Elsewhere, taxation remains the number one cost pressure facing Yorkshire businesses, with the cost of labour also frequently cited as a challenge.
The research was carried out as businesses prepared to brace themselves for an increase in National Insurance Contributions and for a hike in the Minimum Wage, but before America threatened to impose punitive tariffs on many of its trading partners.
Amanda Beresford, chair of the West & North Yorkshire Chamber, said: “Our latest Quarterly Economic Survey is very much a mixed bag for economy.
“Our service sector is very much back in form, with sales, investment plans, employment and confidence on revenue and profits back where they belong and, in many cases, leading the UK.
“However, our beloved manufacturing sector continues to struggle with sluggish sales and diminished confidence over profitability.
“The thing that unites both sectors is tax, with both service sector firms and manufacturers citing it as the number one cost pressure. Given the increase in Employer National Insurance costs and the already eye-watering levels of business taxation, it was inevitable that this would be front and centre.”
The level of service firms who witnessed growth in their sales rose by three per cent, the third consecutive quarter of growth for the sector.
Manufacturing sadly faired far worse with the number of firms growing their sales having declined by seven per centage points.
The sectors are also split when it comes to orders. Service sector firms looking healthy, up by five points while manufacturers continuing to see their domestic order books decline, down by nine points.
For a region which has given the world everything from the first motion picture to the mousetrap, it was dispiriting to see such palpable declines in international sales and orders. Export sales were down by 10 and nine per centage points respectively for service and manufacturing businesses.
Order books were likewise poor, having fallen by 17 points for services and two points for manufacturing.
Both sectors have the worst order books seen since the end of 2020.
One area that both sectors can look upon with confidence is future hiring intent with both sectors looking to increase their headcounts in the next three months.
The level of service sector firms looking to hire is up by five per cent with manufacturers looking to do the same thing up by an impressive 18 per centage points.
This follows a rather dire few months and comes as welcome news to the region’s economy which has struggled with recruitment now for years.
Meanwhile, capital investment in Yorkshire is back with both sectors reporting an increase in spending.
Both manufacturers and service sector enterprises reported a seven per centage point increase in their intention to invest into plant and machinery.
However, another mixed set of results was seen around training investment, which saw the service sector soar by an impressive e 26 per cent while manufacturers witnessed a decline of two per cent.
Given the sizeable uplifts the Chancellor announced at the autumn Budget to both the levels of minimum wage and Employer National Insurance Contributions, it was always going to be the case the chief pressures facing employers were going to be taxation and wage bills.
The eye-watering tax burden facing businesses is taking its toll across a range of issues.
Interestingly, utilities were cited by an increasing volume of employers when it comes to overhead challenges, while interest rates and inflation are not going away when it comes to the headaches faced by firms.
Meanwhile just 36 per cent of firms in service industries and 32 per cent of manufacturers find themselves at full capacity.
One business we spoke to said that “the changes in National Insurance are killing SMEs” while another remarks “I paid more tax than I paid myself in 2024”.
Capping off a gloomy start to 2025 for manufacturers, the level of manufacturers anticipating improved profit levels fell by seven per centage points to the lowest level seen since the height of the Covid 19 lockdowns seen five years ago.
Service sector businesses are feeling strong with the number of firms expecting to grow profits up by nine points, the highest they have been since the start of the summer.
Again, one most go back to the outbreak of Covid 19 to see such low expectations on turnover for manufacturers, whilst the service sector is looking more bullish.
The divide between the service and manufacturing sector seen in our region is reflected in a number of areas across the rest of the country.
Our region’s service sector is outperforming other parts of the country, with expectations on future profitability more than double the UK average. It also ahead of the national average un domestic sales, training investment, capital investment and cashflow.
Sadly, the manufacturing sector is lagging behind and is significantly worse off in terms of confidence than the rest of the North and the country at large.
