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Insights into UK manufacturing

Willy Wonka - An Engineering Role Model?

Verity O'Keefe April 17, 2014 11:30

The importance of role models

We have blogged many times before on the importance of getting young people into manufacturing. We have also identified many ways through which this could be achieved – experiencing the world of manufacturing, getting those subject choices right, and inspiring and informed careers advice.

There are a number of people who influence young people’s career decisions – peers, parents, teachers, siblings and role models.

Concerns have been raised that too many young people aspire to be the next Beyonce or Wayne Rooney. Growing up my role model was Willy Wonka. Anyone who built, owned and lived in a Chocolate Factory was an inspiration to me. (The bricks were chocolate, the cement holding them together was chocolate, the windows were chocolate….) I was the female Charlie Bucket.

Willy Wonka – An engineering role model?

What my younger self perhaps did not realise is that Willy Wonka, and indeed his many Oompa Loompas were actually engineers. Now I know when we refer to people as ‘engineers’ we need to err on the side of caution, but let’s think about it –

With a little help from colleagues in the construction sector Willy Wonka needed to build his Factory. Mr Wonka would have needed to get the temperature of the chocolate to build his factory just right and therefore thought about how to keep it cold enough as not to melt. He and his troop of Oompa Loompas would have needed to explore the thermal insulation properties of different chocolate, and how refrigeration was important during the manufacture of its chocolate bricks and window panes.

Grandpa Joe told us that Mr Willy Wonka himself invented more than two hundred new kinds of chocolate bars, each with a different centre, each far sweeter and creamier and more delicious that anything the other factories can make. Whilst there were only five Golden Tickets, Willy Wonka must have made thousands of regular chocolate bars to entice the people of Charlie Bucket’s town to buy his bars.Therefore he would have had the engineering capabilities to design and develop a machine capable of producing hundreds of chocolate bars an hour, with the ability to randomly insert Golden Tickets in a select few of them.

Then there was the flowing chocolate lake that Augusta Gloop fell into (before getting sucked a pipe). Willy Wonka would have needed to melt the chocolate just right - the art of tempering. The Oompa Loompas would have needed to identify that the melting point of cocoa butter is around 36 degrees (body temperature). They would have needed to ensure they don’t scorch the chocolate by putting the temperature too high. They would have also needed to ensure they don’t melt it too fast, and those working in food and drink manufacture will tell you if you do that the fats and solids will separate. This would give you a crumbly effect not the flowing lake effect they were initially looking to achieve.

Engineering is also about innovation. Willy Wonka had his own Inventing Room, which is where Violet Beauregarde chewed a piece of experimental gum, before blowing up into a giant blueberry. Creating such a piece of gum would have undoubtedly required engineers to think about the chemicals and processes required to develop and produce a gum that doubles up as a filling three course meal. He would no doubt had invested heavily in R&D to produce some innovative products. His Oompa Loompas would have probably doubled up as research scientists and chemical engineers to complete the task.

Inspiring the next generation of Chocolate Engineers

If I had visited Willy Wonka’s Chocolate Factory and not got sucked up a pipe, turned into a giant blueberry, had nuts thrown at me by squirrels and thrown down the rubbish chute or accidentally shrunk myself using a teleport then perhaps I would have pursued a career in engineering.

Whilst there is no real Willy Wonka Factory what we can do is use engineering methods using chocolate to get young people thinking about how manufacturing is all around us.

So this Easter, amongst scoffing our faces with chocolate eggs, let’s try and inspire the next generation of chocolate engineers. To get you started, I have pulled a couple of activities to get you started –

Snacktory Factory (via Tomorrow’s Engineers)

A new employment opportunity is going at the local chocolate factory – the job is a lead process engineer. The job will go to whoever can build the best chocolate bar assembly line. The task is to build a prototype assembly line that demonstrates how you could add toppings to the chocolate bars automatically, without contaminating the chocolate by touching it with your hands. You need to show you can create products quickly too.

Welding with Chocolate (via the National Stem Centre and The Welding Institute)

Bridges are made of all kinds of materials, wood, stone, steel, bamboo or concrete. The best material is the one that is cheaply available, and which will perform its required function. So what about making a chocolate bridge? Which chocolate product would work best – a Milky Bar or a Curly Wurly? And which structure would work best a Chocolate Plank Bridge or Chocolate Box Girder Bridge?

A short (and chocolatey sweet) policy message

In the absence of real life Willy Wonka’s and Oompa Loompas, getting young people excited about engineering can be a challenge, but consistent messaging, activities and a sustained campaign can do so. Each year the Big Bang Fair surveys its young attendees to ask how the Fair had changed their perceptions of engineering – for boys and girls it is always positive. What we need to do however is ensure that we keep manufacturing and engineering in the spotlight. This needs to be a joint effort – Government, industry, schools, young people and others. We also need to ensure that we don’t duplicate our efforts but work together.

There is a policy message here (I promise) – A call for a long-term sustained campaign to get young people into manufacturing and engineering, with everyone working together and not in silos.

Anyway, I must go now, apparently there is an Easter egg shortage crisis and I am going to need to melt down some eggs to make my bridge.

The only way is up

Lee Hopley April 16, 2014 16:00

...according to economic forecasters looking at the UK (not the platinum haired songstress from the 1980s). Last week the IMF caught up in its Spring forecasting round, taking a more optimistic view of the UK's outlook and revising its growth projections up to 2.9% in 2014 and 2.5% in 2015 - a shade higher than the median independent forecast reported by HM Treasury yesterday (2.8%).

Key IMF highlights 

  • Growth has rebounded more strongly than anticipated on easier credit conditions and increased confidence.
  • Unemployment is forecast to fall to 6.9% in 2014 (tho it got there in February according to today's data). Inflation outlook is stable this year and next.
  • The recovery has been unbalanced, with business investment and exports still disappointing.
  • The policy mix is not too hot and not too cold - Monetary policy should stay accommodative, and recent modifications by the Bank of England to the forward-guidance framework were welcomed. Similarly, the government’s efforts to raise capital spending while staying within the medium-term fiscal envelope were seen as helpful in bolstering the recovery and for long-term growth.

Elsewhere, the independent forecasters surveyed by HMT in the past month appear to be a bit more upbeat (on average) on rebalancing, with more optimistic forecasts for investment, exports and manufacturing output. 

Current UK GDP forecasts - 2014
Source: HM Treasury and IMF

Is the only way up?

Independent forecasts (this would include EEF's) certainly suggest that the UK is in for a pretty solid year of growth. But is up the only direction for forecast revisions? It would seem that the number of 'ifs' has diminished this year.  Indeed, data releases this week on inflation and the labour market will support a more optimistic view of consumption with wage growth picking up, inflation drifting down and unemployment dropping below 7%. And fewer uncertainties (plus a bit more tax incentive action) should give rise to more investment coming through from businesses this year.     

Upward revisions to the economic outlook don't yet extend beyond the end of this year, with the Treasury's survey of forecasters showing that sentiment about 2015 hasn't shifted. EEF will publish its next foreast update in June. 

P.S. A few manufacturing facts from the labour market stats

  • Manufacturing workforce jobs were up 1.8% on a year ago.
  • There were 43,000 vacancies in the sector in the first three months of the year.
  • Average earnings, excluding bonuses etc., rose 2.8% in the three months to February compared with a year ago.

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CPI - Key points

Neil Prothero April 15, 2014 10:52

Annual consumer price inflation eased in March to a 53-month low of 1.6%, down from 1.7% in February and below the Bank of England’s 2% target for a third successive month. This maintains the downward trend in the headline CPI rate since the middle of last year. We forecast inflation to average 1.7% in 2014.

CPI inflation down to 1.6%
(annual rate; %)

Source: Office for National Statistics.

Key points

  • Largest contribution to the fall came from transport costs, particularly motor fuels.
  • Other downward price effects from clothing, furniture and household goods.
  • Modest upward contributions from higher prices for alcohol and in restaurants and hotels.
  • RPI measure up 2.5% year on year in March.
  • CPIH measure (includes owner-occupiers’ housing costs) up 1.6% year on year in March.

Inflationary pressures expected to remain subdued over 2014

After falling for six successive months—the longest consecutive decline in inflation since modern records began, according to the ONS—the March reading could mark a low point for CPI inflation. The impact of base effects from the timing of this year’s Easter holidays implies a modest up-tick in inflation next month.

But price pressures should remain modest. Although earnings growth will strengthen gradually in response to firming activity, the degree of slack in the labour market is likely to keep overall wage growth in check. Meanwhile, a period of weaker emerging market demand and the relative strength of sterling will continue to weigh on global commodity costs, not least energy and food prices.

Negligible price pressures in supply chains

Output (factory gate) prices fell slightly on a monthly basis in March, and were up just 0.5% compared with a year earlier. Highlighting the weaker trend in international commodity markets, input prices of materials and fuels bought by UK manufacturers for processing declined sharply, by 6.5% in the year to March.

Bubbling nicely? 

The broad inflation environment may be benign, but the same cannot be said for the housing market. According to ONS data, average UK house prices increased by 9.1% in the year to February, with prices in London surging higher by 17.7%. We think there is still little prospect of the Bank of England raising interest rates anytime soon, but with housing supply constrained, some form of policy intervention by the central bank to try to cool the housing market is possible this year.

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A more top down approach to local economic development?

Chris Richards April 10, 2014 15:28

Could the local economic development landscape be set to change again? A series of speeches and announcements this week have outlined the Labour Party's proposals in this space.

While Labour has always said it would build on the existing frameworks put in place by the coalition government (crucially agreeing not to reintroduce RDAs), the announcements this week were billed as 'ending a century of centralisation'.

However, these proposals look more centrally driven with an ambition for a more uniform structure. The chart below shows how frequently local growth ideas have been implemented over the last four decades ('X' shows initiatives which were subsequently cancelled).

4 decades of local growth initiatives - Source: NAO

Following their announcements this week, Labour has written to LEPs and local authority leaders asking them to put in place plans in preparation for the first year of a possible Labour government after May 2015. The proposals are outlined below set against the current arrangements introduced by the coalition and show a clear difference in approach.

The differences in approach

Labour Coalition
Governance City and county regions should put in place stronger political governance either through Combined Authorities or Economic Prosperity Boards LEPs decide what governance arrangements work best and submit this with their strategic economic plans.
Boundaries A single LEP that maps to city or county region boundaries. Greater powers, resource and clearer role in decision making. Local areas bring forward their proposals for LEP boundaries which can overlap. Secretary of State for DCLG/BIS approves boundaries based on functional economic area test.
Focus Strategy should focus on well-paid jobs and reducing productivity gap vs. top performing areas, along with growth. Growth is the focus with LEPs setting their own vision of what measures they will use. Most have gone for jobs, GVA growth, exports and innovation.
Pay back City/county regions benefit directly from the proceeds of growth Some areas through City Deals can retain business rates locally.

All local authorities can benefit from business rates retention; some have pooled this to share growth.
Central coordination Regional Ministers coordinating sub regional initiatives

A Regional Cabinet Committee with all Regional Ministers and Minister for the Cabinet Office
‘Whitehall Champions’ who are DG level civil servants navigate the Whitehall machine on behalf of their LEPs

Local Growth Cabinet Committee with Secretaries of State and Ministers from all spending departments to sign off on Local Growth Deals, Regional Growth Fund bids, City Deals and other local initiatives

Local Growth Teams combining existing civil service regional teams within each Department using BIS Local Regions

Beyond 2015

Irrespective of who wins the election, LEPs will deliver at least one year of their Local Growth Deals from April 2015 to March 2016. However, during this delivery (if Labour wins the election) the prospect is for some elements to be renegotiated from boundaries, to funding to the objectives behind local strategies.

It is unclear what would happen to the capital funding within the Single Local Growth Fund (roughly £1bn of the £2bn devolved). To allow LEPs to put in place long term capital plans this had been guaranteed for five years.

This could be a difficult challenge for LEPs to manage. In less than 12 months they have prepared EU Structural and Investment Funds programmes, Strategic Economic Plans and negotiated City Deals. In the coming months they will have to negotiate their Local Growth Deals and Single Local Growth Fund allocation – while preparing for the implementation of these from next year.

EEF's view

The frantic development of strategies that LEPs have had to undertake (and now possibly more) leaves little time for them to up their levels of business engagement, which desperately needs to be addressed regardless of which system is in place from 2015.

A key question is whether or not LEPs can deliver. From our point of view LEPs should have to prove themselves before more funds and capabilities are devolved.
We saw the Single Local Growth Fund of £2bn as a good start in the right areas (e.g. transport). Anecdotally we heard that some LEPs breathed a sigh of relief, as an even greater level of funding would have ramped up what was expected of them.

An incremental approach allows lessons to be learned and applied and minimises any potential backlash from a large-scale failure to deliver.

More broadly the focus has to be on genuine place-based challenges. A ‘me-too’ syndrome destroyed the credibility of RDAs among most of the business community as they were seen to be pursuing any agenda, as opposed to one driven by defined challenges.

When it comes to choices about getting value for money from limited resources in the next spending review, the new government in office from May 2015 will need to carefully weigh the pros and cons of an incremental approach, which allows LEPs to prove themselves in a more structured way, against the challenges and potential risks of a big bang devolution of funds.

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localism

Disappointing trade data highlights importance of export week

Rachel Pettigrew April 09, 2014 16:18

Today’s trade data once again showed exports have continued to decline. Exports in the three months to February 2014 were down £1.8 billion or 2.5% on the preceding three months. The chart below shows that, since the middle of 2013, we have seen exports and indeed imports begin to taper off.
Trade tapering since mid-2013
Three monthly trade data, £million
Source: National Statistics 
Looking a bit more in depth shows that this has been a relatively widespread trend. In the three months to Feb 2014 compared with preceding three months
  • Commodities sustaining the largest falls in exports were semi manufactured goods (excluding chemicals) and precious stones.
  • Chemicals was the only commodity which saw a small rise in export values.
  • Exports to both EU and Non-EU markets fell, but imports to both geographical areas fell further resulting in a narrowing of the trade deficit.
This data reinforces the importance of supporting UK exporters, such as through the series of events that are running as part of export week which runs from the 7th to the 11th April. Export week provides a great source of information for businesses through a series of seminars, trade workshops, targeted market days, intellectual property and marketing workshops which are held around the country.
For more information on the journey to exporting, EEF, in conjunction with Barclays, recently published a report Tracking the Export Journey, which explores the process and steps manufacturers go through when seeking to export to a new market. Exporting takes a lot of time and effort by a company but the payoffs in terms of growth can be large. Today's data highlights the importance of Government support and backing for exporting. 

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Manufacturing output up in Feb

Felicity Burch April 08, 2014 10:05

Index of production data out this morning provided some good news about the manufacturing sector.

Manufacturing Output was up 1.0% in February, this was the third consecutive month of growth. Following growth of 0.3% in January, even if output is flat in March, the sector should now grow 1.1% in the first quarter of this year.  

Output rose in seven of the thirteen manufacturing sectors. This month the key contributions to growth rate came from pharmaceuticals, transport equipment (with motor vehicles in the driving seat this month…) and the manufacture of food, beverages & tobacco.
 
The largest downward contribution to the month on month manufacturing growth came from the manufacture of chemicals & chemical products.

Despite the good news, there is some way to go before pre-recession levels of output are reached, with output remaining 8.2% below its previous peak.

45 days and counting...

Lee Hopley April 07, 2014 07:33

The UK's relationship with the European Union remains a hot media topic, not least because of the televised Clegg/Farage debates over the last few weeks. All in all press coverage and debate have generated a lot of heat but not much light on the subject.

What do we want? A better debate

But manufacturers will be hoping this changes in the next 45 days as the UK (and the rest of the EU) in the run up to the European Parliamentary elections. We've regularly blogged about manufacturers' views on the EU - companies want to stay in; they want to see a greater focus on growth and they want to hear a much higher standard of debate about the EU's future.

Today EEF is setting out its prospectus for the next Parliament focusing on the next wave of policies to support growth and competitiveness in the region and the structural evolution necessary to deliver effective and efficient policy making across the bloc. Importantly, the manifesto issues a call for a more positive debate about the UK's role in Europe and more clarity around how the UK's political representatives would seek to evolve its priorities and institutions.

Here's our top 5 asks:

  1. Open up trade and investment opportunities with ambitious trade deals while maintaining a level playing field by fighting against protectionist laws and practices.
  2. Maintain a competitive cost base across the EU with a smarter approach to Health and Safety regulation, limiting the complexity of REACH and delivering emissions reductions cost effectively.
  3. Prioritise investment in innovate to support the development of the technologies and sectors which can support growth and collaboration.
  4. Introduce a powerful 'Red tape Taskforce' which adopts a one-in, one-out approach to regulation; produces an annual statement of regulation costs and oversees a competitiveness test on new laws. 
  5. Streamline the number of directorates and encourage clustering where there is policy-making overlap.

When do we want it? Before the electorate heads to the polls 

At the last European Parliament elections in 2009 fewer than 35% of voters turned out - the 7th lowest in the EU. Many representatives from the business community - from financial services to the car industry- have spoken out about the importance of the UK staying in the EU. Over the next six weeks we need to hear more about priorities to support growth and jobs in the UK and across the EU from all parts of the political spectrum.

"We strongly support Britain’s continued membership of the EU. The Commission and the other EU institutions must now work tirelessly to support business and industry and, promote economic growth."  Terry Scuoler, EEF CEO

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ALARM survey shows the quality of local roads continues to deteriorate

Chris Richards April 04, 2014 11:04

We've written before about the importance of the road network to manufacturers. Despite efforts in the past year local road quality continues to deteriorate, according to the annual local authority road maintenance (ALARM) survey.

The aggregate one time catch up cost for all local authorities (the amount it would cost to bring all roads up to an adequate level) has increased from £10.5bn in 2013 to a record £12bn this year. Last year's figure was also an increase on the £9.8bn reported in 2012.

This is partly driven by this year's severe winter weather but other factors have compounded the issue including:

  • The number of local authorities which still lack a long term preventative maintenance plan, driven by a highways asset management plan
  • The annual budgeting cycles of local authorities (as a result of the Government's own annual approach to the local authority finance settlement) reducing opportunities for economies of scale to be developed
  • In addition, the annual budget cycle results in reduced planning for preventative (as opposed to reactive) maintenance. Planned maintenance is at least 20 times less expensive than reactive work

While local authority highways departments may be losing the war, in the past year they have won several battles. The report:

  • Shows that the Department for Transport’s Highway Maintenance Efficiency Programme has allowed greater knowledge sharing of best practice amongst authorities
  • Gives the example of one local authority which, through moving to a long-term PFI structure, improved their overall network condition by 40% within the first year
  • Shows that 60% of authorities have a highways asset management plan in place, allowing them to demonstrate the escalated cost of delaying repair to elected officials

As a result of this, the gap between what highways departments in England (excluding London) say they need to maintain adequate condition and what they got allocated by councillors has reduced significantly in the past year.

After a sharp increase in the annual shortfall to £741m in 2013 it fell this year to the lowest level recorded in the last decade at £587m.

But the results show there is still a long way to go:

  • Just 60% of local authorities have a highways asset management plan, the local road network in England and Wales is a £400bn national asset a significant proportion of local authorities are mismanaging this asset
  • 20% of local authority roads in England have less than 5 years remaining life based on present asset deterioration, another winter of bad weather would have a dramatic and expensive effect on local roads
  • The average length of time between resurfacing local roads in England (excluding London) is 68 years, in 2013 this figure was 54 years. The recommended frequency of road resurfacing is between 10 and 20 years

As we blogged earlier this week, from 2015/16 the amount planned to be spent on transport infrastructure projects is set to increase markedly. Encouragingly the Government is looking to allocate a proportion of the budget for local road maintenance based on local authorities using asset management principles.

Additionally, this budget will be guaranteed for six years ensuring local authorities who wish to, can put in place multi-annual programmes to enable efficiencies to be achieved - this will be crucial as:

  • Despite the increase, the budget from 2015/16 represents an average increase of just £193.4m per year against this year's estimated annual shortfall of £587m
  • The increase in transport infrastructure spending is across the board, if the supply chain fails to effectively gear up, supply side inflation could see the purchasing power of increased budgets remaining static
  • Local road maintenance funding is not ringfenced, while at the moment local authorities match the amount given to them by central government from their own budgets - with further cuts to local authority budgets expected a squeeze on local road maintenance spending is not unforeseen

Some local authorities have started to look to alternative sources of funding taking on board arguments from bodies such as the OECD which argue that it is 'better off borrowing to maintain roads compared with the alternative cost of deferring maintenance'.

Credit conditions for business - what's new?

Lee Hopley April 03, 2014 10:53

The Bank of England's Credit Conditions survey, published today, tells us not much has changed for smaller businesses over the quarter, but there were sustained improvements for larger corporates.

Corporate credit availability was reported to have increased again in 2014q1

The increase in credit to small businesses was modest and no change was reported in availability for medium-sized companies

Higher demand and lower spreads on lending were notable cross larger corporates

No change in spreads on lending for small business over the quarter 

Corporate credit availability continues to edge up
% balance of change


Source: Bank of England Credit Conditions Survey and EEF Credit Conditions Survey

The Bank's Survey reports a positive balance on availabilty for business, a trend also seen in EEF's recent Credit Conditions Surveys.

For manufacturers overall there has been a clear improvement in the lending environment has been picking up since the end of 2012. But both our survey and the Bank's show that smaller companies are benefiting less than larger corporates.

It's the economy, obvs
% balance - factors contributing to credit availability

 

Source: Bank of England

Key reasons for a pick-up in the availability of finance are the improving economic outlook, which should also be a factor in lenders upping the amount of credit available in the next quarter. Alongside this lenders are also reported an shift in risk appetite and efforts to gain market share, which have also contributed to greater finance available.

On the demand side, positive trends were noted in M&A activity, new capital investment and commercial real estate purchases.

What now?

Most of the evidence on credit conditions over the past year has been moving in a more positive direction, with a brighter demand outlook support more demand; progress in banks' balance sheet repair and interventions such as FLS helping out on the supply of finance.

Not job done though. There are some issues that remain unresolved, including getting a grip on the cohort of discouraged borrowers (which we have flagged up before), getting the overall cost of finance for small companies down and ensuring companies have access to a broad spectrum of financing options within and outside the banks.

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April's Monthly Economic Briefing

Felicity Burch April 02, 2014 14:25

Click on image to enlarge

 

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Disclaimer
This is an informal blog about manufacturing and the economy written by EEF's policy and representation staff. While it is written from an EEF perspective, contributions should not be taken as formal statements of EEF policy, unless stated otherwise. Nor does it cover all the issues on which we campaign - you can check these out in more detail at our main site.

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EEF helps manufacturing businesses evolve and compete.  We provide business services that make them more efficient and management intelligence that helps them plan.  Our work with government encourages policies that make it easy for them to operate, innovate and grow.

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