The broad-based recovery in UK manufacturing, that started at the end of 2009, has gathered pace in the past three months, according a new survey by EEF, the manufacturers’ organisation, and the accountants BDO. The survey of 547 UK manufacturers, conducted during May, reveals that output and order balances hit their highest levels since the survey began in 1995.
It also shows that the improved confidence in the sector is starting to translate into recruitment, with a balance of 15% of the companies surveyed expecting to recruit new staff in the third quarter of 2010.
However, investment balances continue to lag as uncertainty about the strength of future demand, availability of internal finance, and concerns over taxes, combine to keep plans on hold.
“The steadily improving trends in manufacturing look set to continue in the coming months and the upswing is being felt right across industry,” comments EEF chief economist, Lee Hopley (above). “Manufacturers are pulling in more export orders on the back of a recovering world economy and a better outlook for the domestic market is giving companies some confidence to recruit again.
”But manufacturers are very aware that economic headwinds could still pick up again as there are still risks to a sustained recovery,” she warns. “Great importance is now being placed on the need to rebalance the UK economy. In the short term, this requires a Budget which delivers tax reform and deficit reduction in a way which provides some stability and gives manufacturers the confidence to invest.”
Over the past three months, output and new order balances in the surveyed companies hit record levels of +30% and +34% respectively (up from 8% and 2% in the previous quarter)
The improvement in orders has been driven by improvements in both UK and export markets. The export order balance of +23% is the highest on record, while the UK order balance also hit a record high of +24%, with the improving picture being reported across all sectors and regions.
Investment intentions remained flat over the past quarter, after seven consecutive quarters of negative balances. Investment is being held back by a range of factors – 65% of companies cited uncertainty over domestic demand, 46% uncertainty over future tax changes, while more than half cited lack of finance or decisions by parent companies.
Looking forward, the manufacturers expect the positive outlook to continue with +22% of firms expecting output to increase and +20% expecting orders to grow.
EEF is predicting a 3.5% growth in manufacturing both this year and next as output recovers from the recession. It expects engineering output, which fell by 15% in 2009, to grow by 6.4% in 2010.
“These are a good set of results, especially as the manufacturing sector is still getting to grips with the uncertainty of the new coalition government,” says Tom Lawton, BDO’s head of manufacturing. “Manufacturers are now indicating that they want the government to deliver in several key areas: deal with the deficit; establish an environment that allows manufacturing to be competitive; provide specific support to mid-market manufacturers; and create and support investment in emerging technologies, without forgetting the needs of the traditional manufacturer.
“But, British manufacturers have never waited for, or relied on, politicians and regulators to initiate change,” he adds. “The emerging economies provide a huge opportunity for UK manufacturing. Those businesses who understand their core capabilities and who work hard to nurture them, whilst adapting to the rapidly evolving international marketplace, could see growth on an unprecedented scale.”
The EEF/BDO survey findings back up those in a recent report by the Chartered institute of Purchasing and Supply.
