UK MANUFACTURERS INCREASE GROWTH FORECAST FOR 2014

Britain’s manufacturers have substantially increased their growth forecast for 2014 on the back of continued buoyant conditions, up to 3.6% from 2.7% according to the latest quarterly survey published by EEF, the manufacturers’ organisation and business advisers and accountancy firm BDO.

This is significantly ahead of the rest of the economy, despite GDP growth being upgraded to 3% from 2.6%, and will be critical in securing broad based growth across the UK economy.

The EEF/BDO Q2 Manufacturing Outlook survey reveals a continued positive picture with strong trading conditions evident in all regions and sectors. The positive outlook is being translated into on-going plans to invest and recruit. In particular, recruitment intentions have been positive in all but one quarter back to the first quarter of 2010, and builds on the recent pick up in manufacturing employment reported in official statistics.

However, the one cautious note in the survey is that the growth is currently being driven mainly by strong domestic demand, with export orders falling short of last quarter’s record expectations. A combination of weaker than expected growth in the Eurozone and the US and, the appreciation of sterling, provided a hurdle for some exporters looking for growth, but there is optimism that global opportunities will pick up in the second half of this year.

EEF Chief Economist, Ms Lee Hopley said:

“There is a definite sense of confidence amongst manufacturers, reflected in a range of recent data releases and the continuing strong positive balances in our latest quarterly survey. This should help sustain broad based growth across the UK. Given that manufacturers’ investment plans have been hovering near record highs for several quarters, industry has likely been a significant contributor to the recent recovery in business investment.

“There is, however, some uncertainty about the net trade component of better balanced growth. While we see a lot of activity from companies looking to secure new export business, the still uncertain outlook in some parts of the global economy means a turnaround in exporting fortunes in the short term is not guaranteed.”

Tom Lawton, Head of Manufacturing at BDO added:

“Now that Manufacturers have been freed from the shackles of recession they are proving their importance to the UK economy by leading it out of the downturn, outperforming both the service sector and GDP more generally. The motor vehicle industry is showing particular strength but the most encouraging aspect of this recovery is that it is so robust in nature with all subsectors showing an increase in output.

“Government manufacturing policy is clearly paying dividends and is creating an environment in which manufacturers are comfortable enough to commit to future investment, both in terms of employment and capital. This is a very positive indicator for the rest of the year. What is now needed is a focus on how this success in the UK can be replicated abroad and we would encourage the Government to introduce more supportive measures to support exports, especially given the tentative nature of economic recovery in Europe.”

According to the survey output and order balances remained strong compared to the first quarter, with output edging up to +26% from +22%, with new orders at +19%, more or less the levels of the previous five quarters. Responses across all sectors remained in positive territory with the strongest balance continuing to be reported in motor vehicles at +43%. This is expected to continue with a number of new models coming on stream in the next year.

Looking forward, this positive trend is forecast to continue in the next quarter with forward-looking output balances rising to +34% from +29%, while there is continued confidence in the orders outlook with a balance of +32% of companies planning for increased sales in the next three months..

Whilst the domestic market continues to be a source of strength with a balance of +16% of manufacturers reporting rising UK sales, the same as the last quarter, the export orders balance eased to +9%, down from +16% last quarter. However, despite the somewhat disappointing outturn on exports in the past three months, companies are again pencilling in a stronger third quarter. However, given the mixed international outlook, a strong recovery in exports this year is still uncertain.

Both recruitment and investment intentions remain strong on the back of this positive picture. A balance of +23% of companies expect to recruit in the next quarter with all sectors bar basic metals positive. EEF’s surveys have shown positive recruitment intentions in 16 of the last 17 quarters, whilst official data has shown manufacturing employment rising since the beginning of Q1, the longest period of job growth in manufacturing since the mid-90s.

Investment intentions eased slightly from the record level in the last survey, down to +28% from +34%, although they are positive across all sectors and size of firms. However, business investment remains 17% below the pre-crisis peak indicating significant scope for catch up.