EEF blog

Insights into UK manufacturing

Innovation: state of the nation

Felicity Burch April 24, 2014 08:43

Data released in March showed that whole economy expenditure on R&D had fallen in 2012 as both business and government expenditure declined.

However, the initial findings from the UK Innovation Survey 2013 - looking at all areas of innovation, not just R&D - paint a more encouraging picture.

Higher proportion of companies engaging in innovation

The proportion of firms engaging in innovation appears to be on the up, after taking a bit of a dip in the recession. The 2013 survey – which covered the three-year period from 2010 to 2012 – showed that the proportion of “innovation active”* firms rose to 45%, from 27% in the 2011 survey (which covered 2008 to 2010). For both smaller and larger companies, the proportion defined as innovation active rose, but as with previous surveys, larger companies remained more likely to be engaged in innovative activities.

Companies increase the breadth of innovative activities

It’s not just that more firms are engaged in innovation, they’re also involved in more types of innovation. This echoes the findings from our Innovation Monitor 2013 which showed that while manufacturers had been cautious about innovation during the recession – focusing on activities such as process innovation that can bring faster and more certain returns – looking ahead to the next three years companies are looking to be more ambitious, increasing their focus on developing new products and services for new markets.

Manufacturers are the most innovative

When it comes to expenditure on R&D, manufacturers are head and shoulders above the rest of the economy, with nearly three-quarters of total business expenditure on R&D coming from the sector. The UK innovation survey shows that when it comes to broader innovation, the sector continues to stand out. In every manufacturing sector more than 50% of companies are “innovation active” and this rises to 62% for companies engaging in the manufacture of electrical and optical equipment.


Many businesses collaborate on innovation

Partnership remains an important way of boosting the effectiveness of innovation. The UK innovation survey shows that 41% of “broader innovating” companies* had cooperation agreements when it came to innovation. This is slightly at odds with our Innovation Monitor 2013 which showed that nearly all innovative manufacturers partnered for innovation in some way. However, what both surveys have in common is that customers are cited as the most frequent collaborative partners. 

Quality is the key driver of innovation

Innovation allows companies to differentiate themselves in highly competitive markets. Innovative companies continue to focus on using innovation to improve the quality of their goods and services, something which that can help satisfy existing clients and attract new ones. Other key drivers of innovation included replacing outdated products or processes and increasing market share (especially for larger companies).

EEF will be publishing Innovation Monitor 2014/15 this summer, keep an eye out on the blog for more details.

*It’s worth taking a look at the survey if you’d like more information on the definitions used


April MPC meeting minutes in summary

Rachel Pettigrew April 23, 2014 16:38

The decision

On April 9th all nine members of the Monetary Policy Committee voted to maintain the Bank rate at 0.5% and the stock of purchased assets at £375 billion.

The key factors influencing the decision

The key considerations that MPC members took into account in making their decision to hold their stance on monetary policy in the UK.

The Global Outlook

  • Overall little change in the outlook for global activity.
  • Recovery in advanced economies appears to be strengthening.
  • Emerging economies have seen their recoveries slow somewhat.
  • Weak data from China highlights downside risks for global demand and activity.
  • Inflationary pressures around the world have been subdued, especially in the Euro area, where there are risks of very low inflation impacting rebalancing.

Financial markets

  • Asset price volatility has been surprisingly low but may increase as advanced economies return to a more normal setting.
  • Monetary conditions tightened somewhat over the month.
  • Sterling effective exchange rate changed little in March

Domestic market

  • Overall momentum seen to be building
  • Some signs of rebalancing towards investment
  • Surveys and activity indicators point to strong quarterly growth in 2014q1
  • Confidence – both business and consumer – improved as have credit conditions.
  • Downside risks in subdued trade and widening of the current account deficit.
  • Housing market indicators were a little weaker.

Prices and costs

  • Employment was still above the 7% threshold set out in the MPC’s guidance in Aug 2013, but growth had slowed.
  • Productivity growth thought likely to have started to rise after years of stagnation.
  • Nominal wage growth was up somewhat.
  • The impact of wage growth on cost pressures will depend on the interaction between productivity and changing wages, and could go either way.
  • Committee members had a range of views the outlook for inflation in the medium term.

Knockout conditions

  • All members agreed the price stability conditions had not been breached.
  • All members agreed that the likelihood of inflation being high was low.
  • The Financial Policy Committee considered UK monetary policy did not pose a significant threat to financial stability.


Pay Bulletin in April

Joey Lee April 22, 2014 14:52

Our Pay Bulletin for April was published last week.  It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies. It consists of two main parts: pay trends and inflation trends.

How is pay trending?
Pay settlement data in the past few months have displayed a moderately stronger trend, after a long period of broadly stable settlements - see chart below (the blue line climbing!). The figure in March, which includes the biggest pay round so far this year, eased slightly to 2.9% year on year, from an upwardly revised figure of 3.0% in February (which was the largest settlement increase since September 2008).  

Source: EEF Pay Bulletin

Echoing our survey, the labour market statistics published by the ONS last week also showed that the rate of pay growth across the economy is progressing. In the three months to February, pay rose by 1.7% year on year across the whole economy and by 3.2% in manufacturing. 

And what about inflation?
The annual rate of consumer price inflation edged down 0.1 percentage points to 1.6% in March - the lowest rate for more than four years. The downward movement in the rate was mainly driven by transport, with a smaller impact from prices of clothing and furniture & household goods sectors. These were marginally offset by upward contributions from restaurants & hotels and alcohol & tobacco.

We expect to see CPI inflation remain close to its current rate for a prolonged period into 2015. As we reported previously, there is little sign of any inflationary pressures from manufacturers, commodities or the supply chain, whilst the comparatively strong pound will continue to push down import costs. The petrol price forecast this summer is broadly flat, with any upward effect on inflation likely to be offset by the feed through of further cuts to domestic energy bills.

For a more in-depth insight of the CPI, please refer to Neil’s blog from last week.

Here is a little summary of the positive news we share in this monthly publication:

  • EEF three-month average pay settlement getting stronger
  • ONS Average earnings across whole economy AND manufacturing
  • Pay freezes at its lowest level since August 2008
  • Proportion of deferrals
  • Manufacturing productivity saw biggest quarterly rise since 2011q2
  • CPI inflation
  • ∴ Good news for UK manufacturers!


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.


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.


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.



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


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.

We welcome and encourage comments, but we reserve the right to remove any that are offensive or irrelevant. We are not responsible for the content of external internet sites.

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