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Chemical investment in the UK stalling

Chemical Industries Association

5 min read Partner content

The latest figures from one of the UK’s largest manufacturing industries show a fall in sales with no expectation of a full recovery in Q2.

  • Sales continue to fall although expectations for the next quarter are slightly more positive.
  • Apart from high energy prices, labour cost increase is now also the main issue.
  • Recent Government investment support has not had an impact in the chemical sector. The UK is significantly less competitive compared to other countries, which is harming growth.

The Q1 Chemical Industries Association business survey results show that 34 per cent of companies experienced a decrease in sales in the first quarter of 2023. It is important to note that although this is less than the 56 per cent of companies who reported a fall in sales in the last quarter of 2022, this remains a concerning issue. Nevertheless, expectations for later in 2023 are far more optimistic as 70 per cent of respondents expect to see an increase in sales driven by new orders.

The survey also shows that although energy prices remain the number one concern for chemical companies, labour costs are now running them a close second. To show the significance of this, in the previous survey, 44 per cent of respondents ranked energy price increase as the main concern, a number which has now dropped to 32 per cent in this survey. However, the percentage of those who consider labour cost as the main issue going forward has risen from 9 to 20 per cent.

The Chemical Industries Association’s Chief Executive Steve Elliott said: “It is never good to see that a third of respondents are seeing a fall in sales in the first quarter of any year, but it is encouraging to see that despite this fall, plus the energy and labour cost challenges, there remains an expectation of improvement. However, some issues remain the same. We continue to stress that more action is needed from Government to convince international investors that the UK is a competitive place to do business. Our survey shows that 73 per cent of members did not feel that the Budget and the capital allowance scheme will significantly impact business investment. The chemical industry would have liked to see more financial support and clearer guidance over the Net Zero transition and decarbonisation. The lack of any clear structure and competitive response to the American Inflation Reduction Act and the European Union’s Green Deal and Net Zero Industry Act is making the UK a significantly less preferred place for investment especially compared to North America, China, Germany specifically and other European countries generally”.

Steve added: “This is a substantial challenge not just for our sector itself but whole communities across the country where chemical companies have production sites and support the economic, social and environmental progress of local areas”.

Commenting on the survey results, the Association’s Economist, Michela Borra said: “Despite a slight increase in sales in Q1 2023 compared to Q4 2022, it is important to acknowledge the severe impact on chemical businesses of the last quarter of 2022; as over half of respondents reported a decrease in sales. It is concerning that our latest figures show a third of respondents still experiencing a further contraction in sales as both domestic and exports in the beginning of this year. On a positive note, from the business survey and conversations with member companies, it emerged that 40 per cent have experienced an easing of supply chains. Nevertheless, the lack of support by the government towards the green economy transition and the tight labour market conditions that increased the cost per capita of workers forewarn a tough year for the industry”.


Notes:

For more information or to interview Steve Elliott, please get in touch - Simon Marsh at MarshsS@cia.org.uk or 07951 389197.

  • The CIA’s Q1 Business Survey was completed by 56 chemical companies who have operations right across the UK and encompass, small, mid-size and large corporate businesses.
  • The survey focuses on performance in the First quarter of 2023 (July, August and September) and what is expected in the second quarter of this year and in 12-months’ time. Aside from the standard questions on industry performance and the challenges faced by the industry, this edition contained questions surrounding reactions to the spring budget, retirement rates, and international competitiveness.
  • Businesses who make chemical products and solutions are integral to something like 96% of all manufactured goods.  Whether it is ingredients for food and medicines; paints and coatings for cars and planes or materials for mobile phones and electric vehicle batteries, the chemical industry is truly the “industry of industries” – also playing a critical role in the nation’s response to Covid-19 through its supply of hand sanitiser, PPE and vaccine ingredients.
  • Chemical businesses are located throughout the UK, with many of them clustered together in the North East of England, North West of England and Central Scotland.  These factories and laboratories, operated by a highly trained and skilled workforce, make a significant contribution towards the UK’s productivity performance.  
  • Nearly 100 thousand people are employed in the sector and nearly half a million have roles that are dependent on the sector. Chemical workers typically earn around 30% more than other manufacturing industries and almost 36% more than the average worker.
  • From Runcorn to the Humber Bank; from Teesside to Grangemouth, chemical businesses and their employees right across the country are essential to the Government’s levelling-up agenda.
  • We are the country’s second biggest manufacturing exporters, sending goods to the value of more than £41 billion to other countries. The EU represents our most important market, but we continue to work closely with Government to inform and secure UK trade deals with other key chemical markets such as Japan and the USA.

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