Clean energy drive offers hope for future of manufacturing: Samantha Cory

Data from S&P Global indicates that UK business activity has been declining for the past three consecutive months, with the October Purchasing Managers Index (PMI) showing a reading of 48.6.

The PMI measures the rate of expansion or contraction in a specific sector by surveying managers across industries on the business conditions in their firm.

From this, it demonstrates the activity happening in the economy, of which a figure below 50 indicates a fall in business activity. The findings display the escalating headwinds that UK businesses must confront as inflation and higher interest rates begin to take a heavier toll.

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The UK manufacturing sector finds itself in an especially undesirable situation, with eight months of consecutive decline in business activity, and only a marginally higher PMI figure of 45.2, compared to last month.

Samantha Cory shares her expert insightSamantha Cory shares her expert insight
Samantha Cory shares her expert insight

The results act as a mild reminder that a recession is still a real possibility, even with positive Gross Domestic Product (GDP) growth throughout the year. The news fails to ease the recently gloomy tone around the economy, with consumer confidence declining noticeably in October and inflation lingering at 6.7 per cent over the past two months.

However, even though PMI is a useful indicator of economic health, it should not be considered in isolation. Real wages continue to rise, and unemployment remains persistently low, offering some consolation regarding the UK’s growth prospects.

On the other hand, the concerns regarding consumer confidence may contribute to inflationary pressure, forcing the Bank of England to keep rates higher for longer, further harming business activity.

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Therefore, there is uncertainty about GDP performance in the near-term. Late December will reveal whether the UK economy managed to evade a contraction, when the third quarter GDP figures are released.

In a significant move towards bolstering its presence in the electric vehicle (EV) market, Toyota has invested an additional US$8bn in its battery manufacturing facility located in North Carolina. This announcement marks the largest investment of its kind by an overseas carmaker in the United States since the passing of the Inflation Reduction Act (IRA) in 2022.

Toyota’s fresh injection of capital will bring the Japanese automotive giant’s total investment in the North Carolina plant, which is already one of its largest facilities outside Japan, to approximately US$13.9bn by 2030.

This marks the gradual expansion of Toyota’s manufacturing presence in the US since constructing an internal combustion engine plant in Alabama in 2017.

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The new capital investment into the plant will create around 3,000 new job opportunities, pushing the total workforce at the facility to more than 5,000.

This has the potential to boost economic growth and have a favourable impact on the economy in the future.

The Inflation Reduction Act, supported by US President Joe Biden’s administration, provides substantial subsidies amounting to US$370bn, and is aimed at establishing a domestic supply chain for green industries, including battery and electric vehicle production, to accelerate the decarbonisation of the US economy.

As such, it has triggered a wave of investments from Japanese manufacturers in the United States.

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This suggests a positive outlook for the future of the clean energy market, demonstrating that companies are turning towards a more sustainable approach to manufacturing.

Samantha Cory is in the Investment Research Team at Redmayne Bentley