The manufacturing sector and Covid-19

In its latest coronavirus analysis, the Office for Budget Responsibility (OBR) set out its reference scenario based on a three-month lockdown. This implied that GDP falls 35% in the second quarter but bounces back quickly. Within this analysis, the OBR have made different assumptions for each industry sector based on shares of key workers and those able to work from home in each industry, with further adjustments for childcare and absences due to illness. The manufacturing sector is shown to be one of the worst hit, with a fall in output of 55% in the second quarter.

Manufacturing is important to the economy, and particularly so across the Midlands and North of England. The scale of the Covid-19 crisis will thus hit these areas disproportionately hard compared with places that are more dependent on service industries.

The Manufacturing Growth Programme (MGP), delivered by our sister company Oxford Innovation, supports SME manufacturers across 17 Local Enterprise Partnership areas. Analysis of MGP data shines a light on how the types of companies and support they are seeking have changed since the start of the crisis:

  • While the number of manufacturers supported has been maintained since the start of the Covid-19 crisis, demand for support has shifted from the larger SMEs (small and medium firms) towards micro businesses.
  • This has also led to a change in the type of support. There is more demand for shorter term marketing and product development projects, and less for productivity and capacity building projects.
  • This pattern is understandable in the short-term: larger SMEs have re-trenched and many are not considering new projects.
  • However, these are also the bigger employers, and so core to their local and regional economies. As the economy recovers, it will be important to shift this pattern back, ensuring that support reaches larger SME manufacturers and delivers projects that rebuild capacity.

The full analysis can be downloaded here.