EEF blog

If exports meant points in Eurovision – who would we be giving ours to when it comes to the Grand Final tomorrow? Let's have a look at the amount we exported to the Eurovision country finalists in 2012.

12 points – Germany – £32.56bn
10 Points – Netherlands – £23.68bn
8 points – France – £21.98bn
7 points – Ireland – £16.91bn
6 points – Belgium – £13.9bn
5 points – Spain – £8.29bn
4 points – Italy – £7.95bn
3 points – Sweden – £5.59bn
2 points – Russia – £5.52bn
1 point – Norway – £3.64bn

No points for the remainder of countries in the finals I’m afraid – Denmark (£2.65bn), Finland (£1.51bn), Hungary (£1.07bn), Romania (£944m), Greece (£845m), Ukraine (£581m), Azerbaijan (£509m), Malta (£396m), Lithuania (£371m), Estonia (£281m), Iceland (£201m), Belarus (£123m), Georgia (£56m), Moldova (£41m), Armenia (£15m).

Good luck to all for tomorrow (go Bonnie)!

Source:HMRC uktradeinfo

The weekend is around the corner, which means it is our special Sector Friday again! Our focus this week is Textiles! Don’t go just yet as textiles aren’t only about fashion, yarns and shoes. It also covers areas which involve advanced technology (think spiderman suits) and cool gadgets (electric shock underwear anyone?) –  READ ON!

The sector covers yarns and fabrics preparation, textile mill products, the production and development of new fibres , wearing apparel-  no surprises. But 49% of the sector is the dressing and dyeing of fur and processing leather into goods and final products.

I say Fun Facts, you say Key Stats:

• UK textiles accounts for 2.5% of worldwide sector GVA at values of £11.5bn. In the UK it accounts for 3.4% of total manufacturing.
  
• The sector employs 118,810 people in the UK across 7796 firms.
  
• R &D spend growth in 2011 was 18%. 
  
• Capital spending grew by 69% in 2011, reaching £232m worth. This is over double that of 2009.
  
• Significant production is located in the East Midlands, Yorkshire & Humber, North West and Scotland.
  
• Some well-known British brands which produce in the UK: Aquascutum (16% UK production), Mulberry (approx. 30%), and John Smedley (100%, all production pulled back to UK from 2009). Some pioneering UK technical textiles manufacturers are: Eleksen, Fibretronic and Peratech.

Where are the products going?
13% of output is exported, whilst 76% of output goes to households.
Nearly £9bn worth of output was exported in 2011, accounting for 3.4% of UK manufacturing exports.
Our biggest export markets are Germany and Ireland. In 2011, there was healthy growth in exports worldwide, notably to North America and Eastern Europe.

Technical textiles
UK based textile manufacturers tend to be focused on high-value, design-led and knowledge-intensive niche products, e.g. companies based in the North West are particularly successful in technical textile markets. Short cut fibres for example, are widely used in a range of industrial applications.

Constant product and process innovation are very important to enhance the competitiveness of UK textiles, as well as investment in technologies. The Textiles Centre of Excellence in Huddersfield has been set up to provide training, production facilities and development support. 

Revival of textiles manufacturers?
There has been a lot of media coverage on reshoring recently, e.g. a major high-street stalwart announced a 3 year contract with British Fashion Council in Feb 13, to collaborate on new collections which feature sourcing and production in the UK. It is forecast that the industry will grow and increase jobs in the next 5 years.
Some other clothing retailers are considering bringing production lines back to reduce the total cost base, ensure a quicker turnaround time, more flexibility, and to improve the quality and consistency of output.
But with some textiles-specific skills lost after significant offshoring, the sector may come up against challenges.

Future challenges and opportunities:

• The British heritage and glamour
  Emerging economies have triggered demand for luxury goods using premium-grade material produced by UK manufacturers. The prestigious status, history, product excellence and ‘Made in Britain’ design is a major selling point of the goods.
  Currently, around 90% of high quality UK textile production is targeted at export markets.
• The next generation of textiles
  The developing technical and performance textiles have great potential, e.g. the field of ‘wearable electronics’, i.e. interactive textiles embodying sensors, actuators and logic circuits built into the structure of the fibres and fabrics. This may also build a new export base for the UK.
  There are key concerns about intellectual property of products and processes, and maintaining global competitiveness of our textiles products.  It is also critical to link the expertise of UK academic research in textiles to commercial manufacturing in order to maximise growth in technical textiles markets.

Today’s inflation report brings a more positive tone to the future outlook than has been seen for a while, with both the output and inflation forecasts having been revised in a positive direction. The improvement was driven by signs of early momentum picking up in the wider economy. We look at some of the reasons behind each of the revisions in turn.

Output forecast revised up

The upside surprise of 0.3% growth in the first quarter of this year underpins a number of other indicators that give rise to the expectation of stronger GDP growth over the course of this year. Demand and supply are expected to pick up gradually with a number of factors contributing to this change in view. While employment has fallen back somewhat, it is expected to pick up more than previous estimates, household real incomes have led to some up-tick in consumption and the extension to the Funding for Lending Scheme is expected to ease credit conditions and boost demand.

Risks do remain, however, and the recovery, though slow, will depend on how households and businesses respond. The international environment will continue to weigh on sentiment, particularly those risks pertaining to the Eurozone.

Inflation forecast revised down

In the past couple of months inflation remained sustained but for the first time in a while the forecast has been revised down though it will still take the best part of two years to return to target. The slow return to target is expected as administered and registered prices are to remain elevated.

The improvement in the overall forecast was driven by expectations of external price pressure being lower and higher labour market participation dampening down domestic pay pressures.

All in all, the picture is somewhat more positive but the overall trends are not much changed. Inflation will continue to remain above target for some time and, while the economy will remain subdued, it will be growing. As we have mentioned in an earlier blog we want to see the government doing everything possible to support growth, by providing more certainty to business that they have a plan get the economy growing again and ensuring decisions, such as the upcoming spending review, do everything possible to support growth.

The politics of the UK’s relationship with the European Union is front and centre in the press once again. Commentators and politicians are making their positions clear on what it should look like early and often. Furthermore, resolving the actual timing of any public vote on the matter is also becoming a matter of urgency.

Tomorrow, the House will debate an amendment to the Queen’s speech, which ‘respectfully regret(s) that an EU referendum bill was not included in the Gracious Speech’.

All these public declarations may well be valid, but the UK’s starting point is a four-decade long relationship with our European neighbours, which has – for good or bad – led to stronger trade links, a strong European voice on global issues such as security and climate change, and a leveling of the competitive play field in areas such as employment rights.

There is no shortage of campaign groups setting out why the huge cost and regulatory burden stemming from Europe means we should get out AND, in the other corner, the benefits of influence, trade and investment mean we’d lose if we weren’t in.

With our economy still struggling to get back on a stronger growth path, it is surely critical that significant long-term decisions (like that of our relationship with Europe) that have implications for certainty, confidence and ultimately much needed investment across UK businesses are a little more thoughtful.

Perhaps, therefore, an amendment which

‘respectfully regrets that the debate on an EU referendum bill lacks any clear evidence base on the advantages and disadvantages of membership, quantification of the wins from renegotiating any part of the UK’s relationship with the EU and clear priorities for future reform of the EU’.

While the headlines would not be as eye catching, it would at least demonstrate that there is a clear understanding of the issues that both the public and business need to hear about.  In order to decide what is in the UK’s long-term economic interests we must start by presenting some level headed answers to the following questions (although I’m sure there are plenty more)

• how have the recent pressures from the eurozone crisis changed the economic and political dynamics of the region and what does this mean for the UK?
• with the rest of the world forging closer links as economic blocs on trade, investment and technology, where does the UK fit into this picture?
• what is the real size of the prize  from opting out of EU-generated regulation , how much would need to be replaced by domestic regulation and how much impact would this have on how business operates?
• in key areas of policy and regulation could the UK do more to be influential leaders or are we happy to be followers?

If we get some answers to these questions in tomorrow’s debate I’ll be back on Thursday with an update. If not Thursday, it will need to be soon.

If you have any thoughts on where our relationship with the EU goes from here and, specifically, what it means for business let us know as part of our EU Challenge

Last week Rachel blogged about some of the trade-offs the government faces in the upcoming Spending Review. She argued that more government spending must be prioritised towards those areas that drive growth and boost the long-term competiveness of the UK. One of these areas is innovation.  

Innovation is vital to the long-term competitiveness of individual firms, and the UK economy as a whole 

But innovation is risky, and requires resources that companies – particularly SMEs – do not always have access to

As a result, Government must step in as an active partner

This is something that government already does, and the focus of support is right, but the level is insufficient 

Despite recent new initiatives, the level of support for innovation is low, especially when compared with support for science.

Both science and innovation require some public investment to deliver the optimal level of total investment.  But while the UK’s science base is highly successful, as an economy we have not always succeeded in capitalising its outputs. Innovation is necessary to do this. Without sufficient support for innovation, we risk an economy that is “all engine, no transmission”.

Recommendation: The TSB – and its budget – should be moved into the science ring-fence to create a protected “science and innovation” pot of approximately £5bn at current levels of funding. We would advocate a modest increase to the TSB’s budget of £43mn resource funding p.a., but at the very least the innovation budget should be protected.

Additional money for innovation should be used to strengthen the Catapult centres and increase support for SMEs:

Two of the key barriers companies face when innovating are access to facilities and expertise. Catapult centres help address this, but we have concerns that they neither have sufficient funding to keep their facilities at the cutting edge, nor to keep their research focused on innovation (rather than focusing on more commercial projects).

Recommendation: Double operational funding for the High Value Manufacturing Catapult

Almost all barriers to innovation are felt most acutely by smaller companies; as such it is important that there is sufficient support directed towards SMEs. The Smart grant successfully boosts innovation in smaller companies, but despite recent increases in budget – the grants are oversubscribed, “highly competitive”   and consequently have a low success rate of only around 20%.

Recommendation: The funding for Smart should be increased from £40mn to £50mn to make the success rate more comparable with other TSB schemes.

Universities, Catapult centres and other research institutes offer facilities and expertise and can be a vital support for innovative companies. Innovation vouchers are an effective way to increase SMEs’ access to the research base. The scheme has recently been reintroduced but it could be better aligned with other innovation support.

Recommendation: extend Innovation Vouchers to align them more closely with the technologies currently covered by Catapult centres; the budget should be increased by ½mn p.a. for each of the Catapult areas not currently covered, at a total cost of £3mn p.a.

The TSB must remain the responsible agency for innovation support

The TSB is currently the primary agency for dispensing innovation support. In general it does so successfully, despite some concerns about relatively complicated application processes. As such we have some concerns about possible changes to the innovation support landscape.

Proposals to integrate the TSB into the Business Bank risk adding an unnecessary additional layer of bureaucracy to application processes for innovation support if access to support was dependent on a generic diagnosis of needs.

The TSB is not a natural candidate for inclusion within the Business Bank. It offers different support from some of the other programmes that might be included, meaning it is not clear how companies would benefit from a unified front end.

Recommendation: The TSB should remain separate from the Business Bank

The move towards delivering innovation support through a national agency was a positive one, as it removed confusing regional support and reduced the potential for duplication of efforts – something that is particularly important given the small budget for innovation. As such, we are concerned that innovation funding could be channelled through LEPs. LEPs are likely to develop expertise that could help to shape and inform how the TSB allocates its funding, but the ultimate decision should lie with the TSB, which has oversight of national priorities.

Recommendation: Innovation support should be distributed at a national level

Future sector strategies must deliver maximum value for money

The growth partnerships and resultant sector strategies are an important component in addressing some of long-term challenges faced by UK industries. But we need to ensure the spending prioritised through sector strategies delivers maximum value money for the economy as a whole. A budget of £1.6bn has been set aside for sector strategies, but – after the release of only four out of eleven strategies – most of this has already been committed, leaving very little in the pot for the remaining strategies.

Recommendation: Decisions around sector strategies will face the same squeeze as everything else. Unless it is prepared to increase the funds available to sector strategies post 2015/16, the government should wait until all strategies have been produced to understand which proposals will garner the highest return for the economy and make some tough prioritisation decisions.

It is right that sector strategies should interact with the support the TSB offers and that some of the TSB’s competitions should be influenced by these priorities, but the strategies should not imply new constraints on the competitions the TSB runs. In order to provide flexibility for the TSB to support new technologies and supply chains that are not directly covered by sector strategies, decision-makers at the TSB must ultimately be the ones who allocate competitions.

Recommendation: The TSB must also be allowed to run its competitions independently of the government’s sector strategies

It’s Friday, so we are back to our weekly look at sectors. This week, with trade data out today (see my previous blog post) we thought a look at the export performance of different sectors would be interesting.

What we know from previous Sector Fridays…

- Nearly 30% of basic metals’ output is exported
- 83% of UK produced cars, 57% of commercial vehicles and 62% of engines, are exported
- Approximately three-fifths of food and drink exports go to the EU
- Pharmaceuticals is the second most export intensive manufacturing sector with half of output exported
- 53% of electronics exports went to non-EU countries in 2012, the first time a greater proportion of exports went outside of the EU

Let’s go a bit wider and look at (nearly) the full range of manufacturing sectors.

Exports according to sector, £million exported in 2012

Source: National Statistics

Motor vehicles topped the tree last year, with goods worth over £30.6bn exported, the chemicals and mechanical equipment sectors take second and third place with exports of £28.5bn and £28bn respectively. Today's trade data showed the value of automotive exports at its highest since at least 1998 (when the data series starts); the exposure of the sector to markets outside of Europe are holding it in good stead, around 45% of UK exports are to EU countries, compared with 70-90% for Italy, France and Spain, where the motor vehicles industry is looking less rosy.

The food and drink sector's output is mainly domestic consumption, with about 10% exported but the sector still boasts a healthy £16.8bn worth of exports in 2012, of which around three-fifths was destined for EU markets. Half of UK pharma output is exported and the sector runs a trade surplus with non-EU countries and a deficit with the EU.    

Given the UK's governments target for export performance - doubling exports to £1trn by 2020 - let's look at how sectors have fared in the past ten years.

Percentage change in export value by sector, 2002-2012

Source: National Statistics

This is a chart I like - with nearly all sectors showing positive growth in the value of exports in the past ten years. Only electronics posts a negative change in exports, with 2012 values 39% down on 2002 values. Consumers demanding lower cost options has driven a lot of production to be located in low cost countries, but the UK does benefit from being known as a niche manufacturing location and has a competitive advantage in the production of precision/high value instruments, it also has a strong research community and is home to 40% of Europe’s electronics design industry.

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Whilst I'm on the subject of exports - next week , 13-16 May 2013, is Export Week and UKTI are running events throughout the country to promote exporting to businesses. Seminars and events are being held to offer advice on how to go about doing business across the world, especially the fast-growing markets. Take a look at the dedicated website for more info and also follow #exportweek on Twitter.

Trade data is out today from ONS – and shows that exports rose in the first quarter of 2013.

The balance of trade in goods was at an estimated £9.1 billion in March, at similar levels to the previous month. Total goods exports increased by 4.9% to £25.7 billion with total imports increasing by 3.2% to £34.8 billion.

However, monthly figures can be volatile, and the strong rise in exports in March followed a weak February. But even looking at the first quarter of 2013, the value of export trade in goods rose by 1% and the value of imports was pretty much unchanged; the deficit shrank by £0.6 billion.

Some good news on non-EU goods exports with the figures showing them up 47% in 2013 Q1 compared with pre-recession.

Also a positive story on the sector front, with the data today showing the value of automotive exports at its highest since at least 1998 (when the data series starts).

And I know it’s Friday so those in need of more sector facts, hold on a while longer as we’ll have the regular Sector Friday blog today too…

Another piece of good news on the manufacturing front as production rose by 1.1% in March - the second consecutive monthly gain. But today's data still leaves output down 0.3% in the first quarter - in line with the first estimates published last month.

As the chart below shows it's been far from smooth sailing over the past year with a volatile profile of monthly output changes across manufacturing.

Month-on-month % change in manufacturing output

Source: National Statistics

Also encouraging in today's data was the broad-based gains across the sector in March. Most sub-sectors posted some growth - the few exceptions being food, textiles and rubber and plastics. Over the quarter the strongest performers continue to be the transport sectors - motor vehicles and other transport.

The divergence in performance across different manufacturing sectors has been a feature of the industry over the past couple of years. Indeed - there's been something of a three-speed recovery with some up, some downs and some steady as she goes as shown below.

Index of production Jan 2010 = 100

Source: National Statistics

For many manufacturers weak demand at home and in major European markets has been a major factor in their performance over the past few years. But there are some sectors bucking the trend in both directions. Other transport - which is largely aerospace - has more long term certainty over orders, is benefiting from demand for more efficient planes and from robust demand in emerging markets. The sector has seen fairly consistent growth since the start of 2010.

In contrast, the pharmaceutical sector is navigating a fairly unique set of challenges as it faces up to competition from generic drug manufacturers, patent expiration on some blockbusters and squeezed healthcare budgets. 

The food sector sits in the middle as domestic and export demand has stayed pretty steady, but households may switch between own-label and premium brands as incomes have come under pressure.

The rest of the year is likely to bring more of the same sector diversity. Overall we expect manufacturing output to steadily increase over the course of the year, but gains with the sector will not be evenly spread.

Over the course of the next two months the government will be making some difficult decisions as they set budgets for 2015/16 as part of the 2013 spending review. Departments along with representation organisations like EEF are in the process of developing recommendations and feeding into the Government’s decisions process.

It is difficult to consider spending decisions in 2015/16 without taking into consideration the current economic climate. The current economic and fiscal context, with all the risks and challenges that that entails, will have a bearing on the path of public finances and economic growth. Ignoring this context is risky.

The context

The most recent GDP data provided a much needed positive surprise with growth coming in and 0.3% in the first quarter of 2013. That said, taking a longer time perspective makes it clear that the economy has shown little signs of growth for the past 18 months. With a lack of demand permeating the UK economy, investment and trade continue to struggle and the task of rebalancing the economy looks as daunting as ever.

Public finances are similarly grim – the lack of growth along with the government’s budget and consolidation decisions have delayed public finances getting back to a more level footing. Given this, as we think about the implications of setting budgets for 2015/16 in the upcoming spending review we can’t help but question the appropriateness of the government’s fiscal framework and the path of consolidation that has been set. At a time when stimulation in the economy is severely lacking, consolidation has held growth to a much lower path than it otherwise would have been and there is more to come.

With challenging economic conditions the focus needs to be on growth

Unfortunately in the current environment there are no easy choices so the government will need to make some trade-offs. The good news though is that there are options available and the fiscal framework set out by the government does afford some room to do more for growth.

Sticking with the current plan will continue to restrict growth. While providing a clear path for reducing the deficit, the implications of the current spending limits for departmental spending and for growth are large. Departments have already undergone significant cuts in previous spending reviews and further cuts are likely to make it difficult for departments to achieve the outcomes set for them. The current path also means government will continue to drag down growth.

Growth can be stimulated by more capital spending. Capital spending has the highest growth multiplier so the most significant and direct impact the government can have on growth is by increasing capital spending. Living within the spending limits set in Budget 2013, however, would require additional savings so more capital spending could be financed by reprioritisation and the government would also face the challenge of deploying additional funding quickly.

Relaxing the ring fences will ease pressure on budgets that are important for growth. Health spending has been one of the fast growing areas of government for the past decade and has not been placed under the same pressure as other departments despite large potential for savings. Research by the OECD suggests that public health spending has the potential to make the most significant contribution to consolidation without harming health outcomes.

It is not just about spending; the UK needs an overarching growth plan to drive decisions

Spending decisions should form part of a concerted action by government to drive more growth. A long term strategy for manufacturing was identified by 53% of manufacturers as one of the top three changes that would encourage more investment in the UK. EEF’s Route to Growth sets out our view on an industrial strategy that would provide greater certainty in the policy environment that businesses seek.

The government’s fiscal strategy also needs to be guided by a focus on growth. We think this means continued commitment to bringing down the deficit, more funding prioritised towards growth and spending areas that are vital for the long-term competiveness of the UK being protected.

Our full spending review submission will be published in the coming weeks. Stay tuned for more.

We know that when manufacturers recruit young people they continue to look for attainment in English, maths and the sciences.

Three-quarters of EEF employers prioritise attainment in these key subjects when recruiting Apprentices.

But beyond these key subjects, manufacturers are looking for a little bit more – what employers often say to me as that ‘spark’ in a young person, which can even override 10 GCSE grades A* to C.

7 in 10 manufacturers said they look for enthusiasm and passion for manufacturing when recruiting Apprentices.

Igniting that passion at a young age is key and it can be achieved in a variety of ways.

Firstly – work experience, which we have blogged upon time and time again. You cannot underestimate its importance (although unfortunately the Government has as there is no longer a compulsory element at any Key Stage).

Report after report, including that of the Education and Employers Taskforce, has concluded that work experience gives young people new opportunities, new skills and new insights.

Secondly, we can get young people engaged in extra-curriculum activities, through the influential work of organisations such as Primary Engineer, STEMNET, Tomorrow’s Engineers and the Big Bang Fair .

The list is endless and increasingly we are seeing schools engaging with local businesses to get young people interested in industries such as manufacturing, and key subjects such as science, technology, engineering and maths (STEM).

But there is another way we can get young people involved and interested in engineering and manufacturing – through the Design and Technology curriculum in schools.

To be a success, the D&T curriculum must represent what exactly design and technology is, and what it entails in the real working world.

The Government recently consulted on a proposed draft curriculum for Design and Technology at Key Stages 1-3. What can be said of the draft programme of study?

I think the best way to describe the draft is to simply take the words from the Design and Technology Campaign website :

• lacks academic, or technical rigour, ambition and progression
• fails to challenge, inspire or equip talent young people to pursue careers in areas like design, manufacturing, engineering…
• threatens the future of design education, and the future of the huge range of sectors that rely on the vital skills that Design and Technology delivers.

The Design and Technology Association held a poll on their website, with 91% of respondents opposing the draft programme of study – this represented a hefty 1025 responses.

The Association, backed by big hitters such as Sir James Dyson, Dick Olver, Sir John Parker and Dick Powell, didn’t just sit back and watch the consultation period come and go - it campaigned heavily against it.

Influential MPs such as Peter Luff, a real champion of manufacturing raised the issue during a debate in Westminster Hall, urging Elizabeth Truss to listen the concerns being raised.

After extensive campaigning, the Association has finally been heard. It has, together with Education for Engineering (E4E), presented an alternative programme of study to the Government, to accompany its intitial response to the consultation document.

Having seen the content of the proposed programme of study, I can confidently say that this is a curriculum that will get young people interested in industries like manufacturering, helping to ignite that spark of passion that might just nudge them into considering careers into the likes of engineering.

So what is left to do to ensure that this new, (far)improved version is taken forward?

Firstly, we call on all of industry to support the good work of the Design and Technology Association.

Secondly, and perhaps most importantly, we urge Government to take forward the new programme of study and give young people the chance to learn, and enjoy, the realities of design and technology.