The CIA gathers industry insights through a quarterly business survey to advocate for our members’ interests with policy makers, regulators and other stakeholders.
The chemical and pharmaceutical industry is fundamental to modern society. With an immense variety of products, from vital medicines and foods, the construction of buildings, to transport and leisure, the industry truly does have an impact on virtually every aspect of our daily lives.
The Chemical Industries Association undertakes a quarterly business survey of member companies. The data collected, and official data provided by the Office for National Statistics, is then presented back to members for further analysis. The economic report looks at the topics discussed by members in addition to the economic performance of the prior quarter and forecasts for the future.
After entering a recession in the last quarter of 2023, economic output grew above expectations in the first half of 2024. This expansion was driven by services output and resilient consumer spending. In the second half of the year, the economy lost its initial momentum as GDP growth for Q3 was 0.1%. Since our previous Quarterly Economic Report, the Labour Government announced plans to establish a new Industrial Strategy to deliver strong economic growth.
Whilst the services sector’s output continues to fuel the UK’s economic growth, industrial output has been falling and is currently 10% below pre-pandemic levels. The contraction was the result of the energy crisis and fiercely priced exports.
Focusing on chemicals, despite a strong 2.7% expansion in Q2 followed by a 0.9% expansion in Q3, output levels in November 2024 fell to an eleven-year low. Forecasters indicate that 2025 will be a better year for the chemical sector as looser monetary policy and less volatile energy costs should increase production for customer industries.
Headline inflation in December came in at 2.5%, up from the 1.7% registered in September. Higher inflation was the result of higher energy prices and an overall higher price level within the UK. In their latest meeting, the Monetary Policy Committee cut interest rates to 4.5% as the unemployment rate increased to 4.4% and economic activity slowed.
Due to weak demand, chemical input and output prices have deflated for almost twenty consecutive months. Over the past three years, input prices have been higher than output prices, but recently, input prices fell quicker than output prices, narrowing the gap between the two. As of December 2024, chemical input prices are 5.5% higher than output prices, as opposed to the 7.5% recorded in January 2024.
The labour market remains challenging, with chemical companies experiencing difficulties recruiting and pressure to increase salaries. In the chemical industry, total pay rose by 0.3% in the three months to November 2024 compared to the same period a year prior.
Insights from our industry
Turning to our survey, despite a strong start to 2024, the year concluded on a sour note for chemical companies. Sales, production levels, and capacity utilisation contracted for over half of the respondents. Business optimism deteriorated at the fastest rate in over two years, and energy costs increased for almost half of respondents. Margins remain in contractionary territory for 56% of respondents.
Looking ahead to the first quarter of 2025, expectations are positive but come from a low base. Almost 60% of respondents expect higher sales, but energy and raw materials costs are also expected to increase. Just over a third of respondents anticipate their margins to be in a better place at the end of Q1 2025. Expectations for 2025 are more or less similar, with slightly over 50% of respondents expecting sales, production levels, and capacity utilisation to increase. These fairly conservative expectations, coupled with statistical data showing chemical output at an eleven-year low, are worrying and indicate that the UK chemical industry is struggling.
The three main challenges for the sector are ‘Energy Cost’, ‘Labour Cost’, and ‘Weakening Demand’. Expectations over the challenges are not positive, with over 60% of respondents expecting ‘Energy Cost’ and ‘Labour Cost’ to worsen.
The last section of the survey indicated that 48% of respondents planned new investments for 2025, with an average amount of around £11mn.
At the CIA we undertake a quarterly business survey of our membership to identify arising trends, gather consensus and evaluate industry feel regarding arising issues to communicate with government and the media on operating conditions for chemical manufacturers across the quarter. Results from the business survey are discussed in the quarterly economic report. The data collected, and official data provided by the Office for National Statistics, is presented back to members for further analysis. A comprehensive economic report is then published, looking in detail at the topics discussed by members, in addition to the economic performance of the prior quarter and forecasts for the future.
CIA Economic Report Q4 2024
Download report for a full analysis of the sector’s performance against the wider economy and further understanding of critical industry challenges. For more information contact CIA Head of Economics, Michela Borra at borram@cia.org.uk
On 30 October, Chancellor of the Exchequer Rachel Reeves will deliver the Autumn Budget, accompanied by a full fiscal statement from the Office of Budget Responsibility (OBR). In a detailed submission, the industry presents 35 specific proposals for policy changes covering the Government’s recent industrial strategy, net zero, investment in people and innovation.
