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EEF raises 2014 growth forecast to 1.9%, but investment woes remain

05 August, 2013

EEF, the UK manufacturers’ organisation, has upgraded its growth forecasts for this year and next, but warned of significant risks if investment does not make up the ground lost in the past five years.

However, a new survey of small and medium-sized manufacturers from the CBI reports that new orders fell during the three months to July, with export orders registering a fifth consecutive quarterly fall and output dropping slightly. Despite this, the CBI survey of 390 manufacturing SMEs found that optimism has risen for the first time since April 2012.

In its half-year Economic Prospects report, EEF predicts that the UK economy will pick up momentum this year as increased consumer spending drives growth and improved confidence supports a recovery in business investment. It is now forecasting GDP growth of 1.1% for the UK this year, up from 0.9%. It expects this to increase steadily to reach 1.8% during 2014.

However, EEF still expects UK manufacturing to contract by 0.7% this year due to a poor end to last year. It predicts that output will pick up in the second half of 2013 and to expand by 1.9% in 2014. A continuing growth in exports – especially to non-EU markets, which have grown 45% in the past four years – will help to drive the sector, along with recovering domestic demand.

“The events of the last few years have impacted heavily on manufacturing but we are now seeing far more positive signs that growth will pick up,” says EEF chief economist, Lee Hopley. “With the UK economy beginning to move through the gears and, glimmers of hope in the Eurozone, this should translate into more broad-based growth for manufacturing in the next few years.

“However, significant risks remain,” she adds, “particularly the continued failure of investment to show signs of life. We are still some way behind the previous peaks and, if we are to benefit from continued research, innovation and export growth, then investment needs to pick up substantially. A failure to do so could see a build-up of problems in the supply chain and, our competitive position slipping.”

EEF reports that the outlook for employment has stabilised. It does not expect to see a repeat of the job gains posted in 2012, adding that the pace of job losses will be “very modest” this year and next and, well below those seen in the decade before the recession.

Investment remains a problem, and is expected to be almost 10% lower during 2013 than in 2012. Rebalancing the economy towards a greater reliance on growth driven by trade and investment is still some way off becoming a reality.

EEF's Lee Hopley: "significant risks remain"

With business investment currently a third below levels seen in early 2008, EEF is worried that any further delays to the upturn in business investment could dent growth this year and next. In its worst-case scenario of a return to growth being delayed until 2014, the UK may not see any meaningful growth in business investment before 2015.

In its latest SME Trends Survey, the CBI (which represents British industry) reports that during the past three months, domestic orders for smaller UK manufacturers have been static. It says that the prospects for the next quarter ahead are slightly better, with output expected to stabilise and new orders likely to contract at a slower pace. Nevertheless, manufacturers have tempered their expectations for output growth for the coming quarter to the lowest in a year, and expect headcounts to fall slightly, following a year when they were almost static.

“Despite another disappointing quarter for small and medium-sized manufacturers, with output continuing to fall, optimism about the general business situation has risen for the first time since spring last year,” reports Anna Leach, the CBI’s head of economic analysis. “Firms expect demand to improve both at home and abroad and production to stabilise over the next three months. But manufacturers remain concerned about the impact of political and economic conditions overseas on external demand, reflecting on-going uncertainty about the global economic outlook.”

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