UK Chemical Industry Has Solid Start To 2021 But Warns Of Risks Ahead

Chemical and pharmaceutical companies in the UK, the country’s biggest manufacturing exporting sector, have reported a positive start to 2021 according to the latest survey of members of the Chemical Industries Association.

Comparing the first quarter to quarter four of last year, more than 80% of companies reported that total sales volumes either increased or stayed the same. While domestic sales largely stayed the same, non-EU exports saw an increase to offset what looks like a temporary fall in EU exports as companies grapple with the new trading arrangements and run down pre-Brexit stock piles.

In other areas of companies’ recent performance, over 40% reported an increase in new orders while 34% saw an increase in production levels and 32% growth in capacity utilisation. Employee numbers, R&D spend and capital expenditure largely stayed the same however more companies reported an increase than a decrease.

Steve Elliott, Chief Executive of the Association, said “This performance by chemical businesses and their workforces across the UK represents a superb contribution to the UK economy. The fact that we grew during a pandemic speaks volumes for the hard work of the men and women who work in our member companies.”

Building on this start, the future outlook adds to that positive performance. For the next quarter, ninety percent expect that total sales will increase or stay the same, with more than 90% of companies in all regions expect domestic sales, EU exports and rest of the world exports to either increase or stay the same. This should provide great reassurance to many communities as employee numbers, R&D spend and capital expenditure are expected to largely stay the same. Over the next 12 months as the post-Brexit issues of transportation for exports and imports (85% reporting logistical issues as the biggest problem in doing business) hopefully calm down , the positive feeling is even higher. Two thirds of companies expect an increase in new orders and in production levels.

One of the growing threats to the UK economy is inflation. Since the Office for Budget Responsibility’s forecasts, that were published alongside the 3 March Budget, 10 year government bond yields have almost tripled from 0.3% to 0.8. Although this may sound small and insignificant, for a government that is expected to borrow a further £234 billion in the financial year 2021/22, equivalent to 10.3% of GDP, this represents billions of pounds in increased debt servicing costs, potentially using up the majority of the £17 billion the Government expects to raise from increasing corporation tax. The increase in bond yield is largely driven by a rise in inflation expectation within the economy. In our survey just under 50% of respondents reported that a rise in inflation was a worry for their business while a further 45% said it was a slight concern.

Elliott continued “There are very real concerns remaining and we are quite rightly not complacent about achievements to date. For any industry to succeed it needs to be able to operate in a well-managed economy. While Government has faced unprecedented challenges we do need a clear plan, with coordinated actions, to return to full growth. In 2021 that means a UK REACH regime that is more supportive of business and an energy and climate change policy framework that enables chemical businesses to maximise their contribution towards the country’s net zero ambition. It also means support for our customer industries who include automotive, aerospace and food & drink.”

He ended “The Chancellor’s Budget was largely welcomed by chemical company Chief Executives and the individual measures he announced around super deduction tax, apprenticeships and free ports will help. I welcome too the publication of Build Back Better and other linked initiatives including net zero opportunities, but we all want to see the overall look of how Government sees the future British economy”.