Output and order growth slow and steady – expectations remain positive

Print Solutions

The slow and steady improvement for output and order growth in the UK’s printing and printed packaging industry has continued in the second quarter of 2024. The forecast was for stronger growth to come through in Q2, but now that the BPIF has published its latest Printing Outlook report (for Q3 2024) that expectation has been downgraded slightly, and rolled over, into Q3. However, we have now had three consecutive quarters of growth, and the improvement is expected to accelerate in Q3.

Wage pressures, linked to historically high inflation and the knock on effect of maintaining wage differentials connected to the hike in national minimum wage levels has continued to have a significant impact on companies in the latest survey – as most concluded their pay reviews in Q2. A difficulty in finding suitably skilled labour has also contributed to the wage pressure.

Industry competitiveness is fierce – companies pricing below cost (or the perception that some are doing so) has become the top ranked business concern. However, controlling costs, researching new markets, and putting efforts into driving sales are all key target areas for companies that are striving to improve their profitability.

Kyle Jardine, BPIF economist, said: ‘It might be hard for some companies to identify with the slow and steady sentiment – it is important to acknowledge that some companies have reported a quiet spring and summer; whilst others have rarely been so busy. The aggregated data represents the path the industry is taking – and that is one of improved, but still slightly subdued growth, but waiting expectantly for a stronger pick up to come.

‘The economic backdrop has continued to improve – growth is positive, inflation has come down and we are waiting to see when interest rates will also track down. If the UK economy continues to improve – and the new government can find a stable way to support business, then confidence will return more strongly.’

Charles Jarrold, BPIF chief executive, said: ‘Whilst the recent growth status of our industry has been subdued, it reflects the period immediately prior to the announcement of the general election. While it is very early days, there is a new level of energy and focus within government which I hope will feed through to economic confidence going forwards.  We will be looking out for that in our next survey. Meanwhile, we do know that companies have come away from drupa with clear intent to continue to invest, automate and innovate, and we will of course take every opportunity to discuss with the Labour government how to fully support that.

‘As the leading industry trade association, we are closely engaged in identifying how we can support the sector as the new government announces its priorities, and as we have done previously with issues such as the increases to National Living Wage, gather information from the sector, and respond to calls for evidence and consultations as government designs legislation. That is our opportunity to ensure legislation is business friendly and we’ll continue to engage fully and positively.’

Summary of key findings:

The slow and steady improvement for output and order growth in the UK’s printing and printed packaging industry has continued in the second quarter of 2024. The forecast was for stronger growth to come through in Q2, that expectation has now been downgraded slightly, and rolled over, into Q3.

The printing industry hasn’t passed through the turbulence in confidence just yet, the expected improvement in Q2 was thwarted, but it hasn’t deterred renewed expectations for a recovery in industry confidence during Q3.

Concerns that competitors are pricing below cost have strengthened to make it the new top business concern for printing companies, replacing worries about sales levels.

Industry capacity utilisation remains concentrated in the 70 to 89% range in July, similar to what was reported in April.

Up until July 2022 the most widespread and significant constraint on capacity was supply chain issues. Since July 2022, a shortage of skilled employees has been the most significant constraint.

More companies increased, than decreased, employment levels in Q2 and, despite some difficulties around recruiting, intentions for Q3 are also slightly positive.

Average price levels continued to decrease, on balance, in Q2, although a strong majority did manage to hold their prices steady.

Labour cost increases have continued to be the primary cost concern for companies in Q2, but pressure continues to mount in other areas – in particular paper and board prices are surfacing again.

In July, labour costs (direct and indirect) has usurped paper, board, and other substrate costs as the largest cost component.

As in Q1, a majority of printing companies were able to hold margins steady in Q2 – but margins remain under significant pressure, on balance, as costs continue to increase and the squeeze on output prices remains.

When it comes to company plans to increase profitability in the next 12 months, cost control remains the primary area of focus, as it has since July 2023.

Just over three-fifths (61%) of respondents reported that they had conducted a pay review in Q2, the resulting average (mean) change in basic pay was 4.3%.

Export orders exceeded 5% of turnover for 12% of respondents in July, down from 18% in April. For these companies export orders continued to perform poorly in Q2 – exports order levels have struggled for the last two years.

UK consumption of printing papers and boards in Q1 2024 fell back slightly compared with Q4 2023, but consumption levels remain well above the record low recorded in Q3.

The last quarter has seen a further moderate increase in natural gas and electricity markets, although prices have retrenched significantly from recent highs in late May.