The oil price spike has left many energy-intensive manufacturing businesses feeling the pinch. Longer-term indicators, however, point to a UK manufacturing sector that is growing and looking to invest, writes John Harrison, Head of Relationship Management, Allica Bank.

The PMI survey – a key barometer of sentiment amongst manufacturers – hit 51.8 in January, its highest since August 2024, though confidence has recently been hit by rising energy costs.

If anything, rising energy costs make the case for investing in smarter tech and cleaner energy even more compelling.

This need to invest is recognised amongst the businesses I speak to. Whether it’s upgrading production facilities with a family-run worktop producer or helping a glazing manufacturer remortgage to fund international expansion, there’s a strong desire out there to invest in new machinery, equipment, premises and teams.

This appetite for innovation is great news for the communities and jobs these businesses support, but the ambition I see in the sector isn’t always being matched by high-street banks.

Banking on Growth?

One of the great joys of my job is being able to find financial solutions for innovative manufacturing businesses and backing their growth.

For many businesses out there, however, their experience of business banking is far less positive. Time and time again, I meet manufacturing businesses looking to raise the finance they need to put plans into action, but who are turned down by the high-street banks because a computer said no.

This is because many in the business banking world have turned away from the established businesses of between 5 and 250 employees that make up the majority of the manufacturing sector, to focus instead on larger corporate and blue-chip manufacturers.

Because of that, the established businesses that support thousands of high-skill, high-value jobs across the country are left underfunded and under pressure.

The lack of support these businesses often get from their high-street business bank risks undermining their growth and success. And more than this, it risks undermining the UK’s economic health as a whole.

Mind the Lending Gap

To get a sense of the extent to which business lending in the UK has left established businesses behind, we partnered with Oxford Economics to take a look at the numbers.

Our research shows that business lending to established manufacturing businesses has been declining for more than twenty years. Lending to the sector is around £760m lower than it would have been if it had continued at levels seen between 1997-2004. This has left countless businesses frustrated – and left the UK with the lowest levels of business investment in the G7.

Our economy has struggled long-term with the thorny issue of productivity and investing in the efficiency and expertise needed to boost it. Closing this productivity gap means closing the lending gap. Better business banking is crucial to this.

As well as being great for individual businesses, the benefits of better banking compound in other ways. Our research discovered that every £1 million lent to an established business generates £2.4 million GDP growth, 35 new jobs and £600,000 in tax revenue. In 2024 alone, our lending to Britain’s underserved established businesses added £5.8 billion to the nation’s GDP.

Generating Returns

So, what does better business banking look like?

For individual businesses, it looks like getting the support you need from a banking partner to turn ideas into reality. Take, for example, a process automation business my team worked with recently. We helped them to secure the funds to buy out existing management and steer the business for the future and for global expansion. Or a manufacturer who is now making money work for them by switching to a higher interest savings account.

Beyond finances, it also looks like relationship-driven banking, with real people, focused on providing the advice and bespoke support businesses need to grow – all backed by powerful technology that can actually support your business.

So, after years of underfunding and underinvestment, the message to the UK’s established manufacturing businesses is that better business banking is available. To unlock this support and growth however, business leaders need to look beyond the high-street banks. It is there where they will find the kind of relationship-driven business banking that can help translate ambition into action.

Learn more: https://www.allica.bank/

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