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Insights into UK manufacturing

Pay Bulletin in September

Joey Lee September 18, 2014 11:07

Our Pay Bulletin for September publishes today.  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?

The three-month average pay settlement was stable at 2.7% year-on-year in August.  Our current data is slightly above the general trend for average settlements, which have been coming in between 2.4% and 2.6% for the past two years.

The proportion of deferrals was at 0% in the three months to August, unchanged from the figure in the three months to July. Before that, the last time we had a 0% proportion of deferrals was August 2012. Have a look at the interactive graph below which tracks the figures for two years. 


The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trend in the broader economy. In the three months to July, pay rose by 2.0% year-on-year in manufacturing, a climb of 0.4 percentage points. In the whole economy, pay rose by 0.6% in the same period. Excluding bonuses, pay was up 1.7% in manufacturing, and 0.7% across the economy as a whole.  For a more in-depth look of the Labour Statistics which came out yesterday, please refer to Felicity’s blog.


And what about inflation?

The annual rate of CPI inflation slowed to 1.5% in August. The decline in inflation between July and August was mainly a result of the falls in petrol and food prices. The largest uplifting effects, on the other hand, came from apparel and footwear, transport services and alcohol. The softer inflation may ease pressure on the Bank of England when considering when to raise interest rates, an on-going hot topic throughout 2014.

Although there was a fall in the inflation rate, it still came in marginally higher than our original forecast, mainly due to the influence of a weaker pound on core prices (which includes food, energy, alcohol and tobacco). The inflationary environment in the coming months remains rather gentle. There is little sign of inflationary pressure from commodity prices and the supply chain. As we flagged before, the large amount of spare capacity continues to bear down on margins and wages. We continue to forecast that CPI inflation will remain below the 2% target for the next couple of years, though the outcome of today’s Scottish independence referendum would likely to make an impact towards sterling, and subsequently would affect the inflationary pressures.


Labour market outlook: mainly sunny but still some clouds in the sky

Felicity Burch September 17, 2014 09:28

The labour market statistics once again resume their role as a ray of sunshine in the economic calendar, with this morning’s data showing that the labour market has continued to strengthen.

Mainly sunny

While there are a number of economic storms rumbling about in overseas markets, in the UK the labour market continues to look sunny, with good news as the ILO employment rate remains at near-record levels, and the ILO unemployment rate fell to 6.2%, its lowest level since the three months to September 2008. Our forecasts suggest that gradual continued improvement is likely, and unemployment should average 6.0% in 2015.

The positive outlook extends to manufacturing with the data showing that workforce jobs in manufacturing increased by 1.2% in the second quarter. This marks the sixth consecutive quarter of growth, the first time this has happened since 1993-95. Combined with the news that manufacturing vacancies have risen by an impressive 37% over the year this suggests the employment in the sector is on track to meet our forecast of 0.8% growth in 2014.

Still some clouds or showers about

Despite a generally cheery picture, there are some clouds in the sky. Average weekly earnings growth remains subdued. Across the economy as a whole, earnings (excluding bonuses) rose by only 0.7% in the year to July. This compares with the average in the five years before the recession of 3.8%.

While pay rises are likely to remain subdued throughout 2014, our forecasts suggest that whole-economy pay increases will rise above inflation as we move into 2015.

Better weather for manufacturers

The picture in manufacturing is somewhat stronger, with average earnings increasing 1.7%. Our own data shows a similar picture, last month our Pay Bulletin showed that while pay settlements in manufacturing had averaged about 2.4% over the last two years, the most recent data pointed to a slight uptick. The average pay settlement in the six months from February to July came in at 2.6%. Importantly, this includes April, one of the year’s major pay rounds, which is a good indicator for pay this year.

Tomorrow we release the next Pay Bulletin, so check back on the blog for further details.

Inflation extends run to 8 months below 2%

George Nikolaidis September 16, 2014 10:43

The CPI inflation rate decelerated again in August extending its run to 8 consecutive months below the BoE target of 2.0%. The CPI rate came in at 1.5%, down from 1.6% in July.

Inflation was kept at bay by a combination of factors weighing down on business costs, such as cheap imports from a strong sterling, weak wage growth and lower energy prices. About three quarters of the downward pressure on prices is accounted by falls in the prices of motor fuels (-5.7% on year) and food & non-alcoholic drinks (-1.1% on year).

On the other hand, a quarter of inflation came from a 3.2% on year increase in the price of housing, water, electricity, gas and other fuels. The end of summer retail sales also signalled a 2% increase in the price of clothing & footwear, while transport costs increased 1.2%.

How does it affect interest rates?

It appears that there is enough spare capacity in the economy to support low inflation well into 2015. This should once more relieve pressure from the BoE to hike interest rates, which according to the Governor’s latest speech should now happen next spring. A benign inflation outlook allows the BoE to continue focusing on other indicators such as productivity as well as smoothing out the hikes with incremental increases.

What about manufacturers?

For manufacturers, low inflation is reflected in declining prices for production inputs (PPI).  The overall price of materials and fuels bought by UK manufacturers for processing fell 7.2% in the year to August, the second highest rate of deflation since September 2009. Most of the decrease comes from large falls in the price of fuel and crude oil as well as from declining import costs partly driven by persisting deflation in the Eurozone.


Deflation in input prices had a bearing on manufacturing output prices, which also fell by 0.3% on year. Positive contributions from clothing, textiles & leather products and tobacco & alcohol products were offset by large decreases in the prices of petroleum and food products, declining by 7.1% and 2.2% on year respectively.


Voters back demands for a better-balanced economy

Terry Scuoler September 15, 2014 08:30

Terry Scuoler is Chief Executive of EEF

Amid political turmoil over Scotland, it is easy to forget that another hotly anticipated democratic change is looming on the horizon. Next year’s general election is just 8 months away and, regardless of the outcome, there are concerns over the impact it could have on our ambition for a strong, stable, rebalanced British economy.

The stakes are high. The election comes at a critical time for the UK’s economic recovery - we cannot afford to lose direction or pace. This is why, to the election and beyond, we will be stressing the pressing need for balanced growth and the key role our sector has to play in underpinning it.

We are going to be calling on all parties to put delivering a long-term strategy for growth at the top of their agenda for government. Better-balanced growth must be our 2020 destination.

This is not industry talking in isolation - voters also want to see it. After the harsh economic lessons of recent years, people in Britain want long-term plans for protecting and building upon the economic recovery to be centre stage during the election campaign. Almost eight in ten (79%) say this is important.

Our YouGov research also shows that over six in ten (63%) want to see Britain enjoying a better-balanced economy – mainly because they can see the benefit of the long-term security and resilience it would provide.

In a real vote of confidence for our sector, an overwhelming 85% want the next Government to promote a stronger UK manufacturing base, believing it will deliver more jobs, economic growth and prosperity. Manufacturing is in fact the sector consumers most want to see grow.

Manufacturing is the sector consumers most want to see grow

Source: EEF YouGov poll 2014

Industry and voters are singing from the same hymn sheet - which gives political leaders even more reason to hear what we have to say. Our message to them is simple: a strong, rebalanced economy has to be the long-term end goal and at the heart of your election offering. Now is not the time for Britain to lose its way.

UK textiles en vogue

Joey Lee September 12, 2014 09:39

Give me some breaking news of this week: Scottish independence referendum, Prince William and Kate’s second royal baby on the way, the iPhone6 and Apple Watch, Great British Bake Off no one got sent home……and you know how they say the best comes last? YES, it does! It is the start of LONDON FASHION WEEK today!

In celebration of the arrival of #LFW, we have put together an infographic on our textiles sector, highlighting its contribution to the UK manufacturing, the heart of our economy. Please click on the image below.

Investing in more than machines

Madeleine Scott September 11, 2014 15:22

Following on from Lee's blog earlier in the week, let's have a look at part of our research in Investment Monitor 2014, in partnership with Lombard, on manufacturers' investment in intangibles.

Expenditure on physical assets such as machinery, buildings, computers and vehicles clearly forms an integral part of manufacturers’ investment plans, but spending on intangibles such as new software or database technology, marketing, human capital and organisational change have become at least as important as other traditional factors of production in determining companies’ overall business strategies.

UK-based manufacturers know the importance of product quality, strong brand awareness, customer collaboration and employee training as key sources of competitive advantage.

Staff training 

Alongside their investment plans for plant and machinery, a majority of our survey respondents intend to increase spending on a range of intangible areas over the next two years. More than 70% of companies plan to raise investment on staff training and recruitment, with one in six of those companies targeting a significant increase. This latter group saw a clear split in terms of company size, with a bigger share of smaller firms with annual turnover below £10m planning a significant rise in expenditure on staff training and recruitment compared with larger companies.

Marketing and R&D

Three out of five companies in our survey expect to increase their levels of expenditure on marketing and branding activities over the next two years, which is a similar proportion that plan to boost spending on research and development (R&D). Again, in both of these areas, it is mostly the smaller firms that are earmarking a significant rise in investment.

Broad spread

Underlining the important role of intangible investments across the manufacturing sector, our survey shows that companies’ planned spending on intangibles over the next two years is, for the most part, spread across a broad range of areas. Just over 60% of companies expect to increase investment in three or more categories, with just one in six focusing spending on a single area.

Importance of intangibles?

A small positive balance of respondents to our survey stated that expenditure on intangibles was becoming more important for their company than expenditure on plant and machinery, with a slight bias among smaller firms, showing the integral role that intangible investment now plays in many manufacturers’ overall capital expenditure plans.



How You See STEM, How You Don’t Part I

Verity O'Keefe September 10, 2014 08:26

This week BIS published a piece of research that explored young people’s perceptions of STEM (science, technology, engineering and maths) subjects. The report contains buckets of useful information that I could blog on for hours, so for now I’ve focused in on a couple of areas of interest and will focus in on the perceptions on STEM a bit later on.

Firstly the research found that parents are the first line of influence for young people. Parents are the go-to for advice on both subject and career choices, particularly in the early years.

20% of 14-16 year olds turn to their parents to advice compared to 14% of 17 to 18 year olds.

However, the challenge is ensuring that parents know about the various opportunities that their children can take and tackling stereotypical views. Take Apprenticeships for example – whilst there has been a huge drive to encourage young people to pursue vocational pathways such as an Apprenticeships, many parents still do not regard Apprenticeships as a credible pathway as university. Indeed research by the Royal Academy of Engineering found that more than one in ten parents still maintain to Apprenticeships are a second best route to university.

The BIS research found that at Year 12, 68% of young people want to go to university compared to just 26% considering vocational routes.

The BIS perceptions research also found that parents can have ‘out of touch’ gender stereotypes. The gender divide is a massive challenge in manufacturing and engineering. We have blogged before on the low number of female engineers we have in the UK, especially compared to our European counterparts and the fact that only about 5% of manufacturing and engineering apprenticeships are taken up by females.

We need to get parents thinking of their daughters as the next generation of engineers. Action is being taken, albeit slowly – a large automotive company recently held an event of ‘bring your daughter to work day’ so that parents and indeed their daughters can better understand the opportunities available to them, and more and more of such events are beginning to be held.

Of course it’s not just parents that are influential, young people are also looking for role models (again something we have blogged on previously), and this is when celebrity status comes into play. The research finds that for boys there is a desire to follow passions and be like their sporting heroes and girls were looking up to actresses and fashionable celebrities.

Let’s not forget that what is considered ‘cool’ is constantly changing – speaking to a friend’s young daughter just the other day I was trying to be ‘cool’ and talk about One Direction to then be told that nobody is interested in 1D anymore it is all about the Vamps and 5 Seconds of Summer (that told me!) So we need celebrities that are on our screens and downloadable on our ITunes now.  Will.I.Am remains a great champion of STEM and the role STEM skills play in the music industry.

What was also interesting from the research is young people want to stand out from the crowd.

72% said to some extent they want to aim for a job that is unusual and exciting despite potential fierce competition.

Well step right up and enter into a world of engineering, a world of missiles, jets, prosthetics and racing cars.

Another line of the report reads – money is important but not critical. £25,000 is the median annual salary young people consider being a good salary – and with the average engineering graduate starting at £26,019 it seems our sector has the upper hand on this one.

So in summary young people are looking to their parents for a nudge or a nod towards certain career and subject choices. Tied into that they are looking for a tidy pay package, but not one that infringes on their work-life balance, and they would like to align themselves to a current and cool celebrity.

Quite a lot to think about, and we haven’t even touched on the perceptions of STEM – so come back soon to find out more!

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UK manufacturing still on track despite weak production and trade data

George Nikolaidis September 09, 2014 14:11

Production Data

Today’s ONS Index of Production data saw manufacturing expanding by a modest 0.3% on month, pointing towards a slowdown in manufacturing activity compared to earlier in the year. However, solid annual figures and positive expectations by UK manufacturers indicate that manufacturing will achieve its EEF forecast of 3.3% growth for 2014.

Manufacturing output remains on track with eight out of thirteen manufacturing subsectors experiencing growth over the last month. Basic pharmaceutical products saw the highest increase by 4% followed by a 2.2% increase in electronics.

On the other hand, the production of textiles dropped sharply by 3.9% and transport equipment was the largest downward contributor to manufacturing growth, deducting 0.1 percentage points from total production. Nevertheless, strong growth in textiles and transport equipment in the preceding months means that we expect these sub-sectors to post positive growth over the course of the year.

Trade data

The cooling off in manufacturing activity is mirrored in the trade data released earlier today by the ONS, where the deficit in goods and services widened further in the three months to July. Positive monthly figures showing goods exports up by £0.5 billion were side-tracked by less than encouraging 3-month data.

This ties in well with EEF’s quarterly survey which showed weak demand in export orders for UK manufacturers over the past three months. A combination of geopolitical tensions, sluggish demand from the Eurozone and a strong Pound is weighting down on export demand.

In the three months to July, the trade in goods deficit widened by £2.9 billion, with exports falling by 0.3% and imports accelerating by 3.2% - more than ten times the rate of export growth. Indeed, total manufactured exports excluding erratics performed poorly in the last 3 months, declining by 0.6%, while on year figures saw a modest 0.9% increase.

Manufactured products import figures continued to increase at a marked rate of 1.8% compared to the previous three months and 3.4% over the same three months last year. More than half of the three month deficit was down to trade in machinery and transport equipment where aircraft and cars experienced significant import but little export activity. It seems that a considerable portion of the trade deficit in transport equipment is down to erratic purchases of aircraft and more consistently high imports of cars.

Of manufactured products, exports of chemicals contributed the strongest to net trade by adding £0.3 billion. Trade in chemicals, and more specifically trade in medicinal and pharmaceutical products, has grown by more than 100% over last 10 years showing great promise for UK exports. Chemicals are nevertheless an outlier with the majority of manufactured products contributing negatively to net trade.

Promisingly, roughly 95% of the total increase in exports was down to trade with countries outside of the EU. Exports to non-EU countries increased by £0.5 billion compared to the less than £0.1 billion increase in exports to the EU. Still, the disparity between the economic situation in the UK and its largest trading partner continues to drag on net trade. 



Growth | Trade

An uncertain return - the future path of manufacturing investment?

Lee Hopley September 05, 2014 15:42

The level of business investment matters. Its contribution to the UK's growth can support the rebalancing of our economy and investment in new plant and machinery and other intangibles is a critical component of business competitiveness and productivity.

Historically the UK's investment levels have not compared especially favourably with many of our developed world competitors. And despite economists' hopes that a business investment revival would drive the UK's economic recovery forward, the path of investment growth has not been as strong as hoped. EEF together with Lombard are undertaking an annual survey - Investment Monitor - to see whether there are signs the UK's investment performance may be starting to change? For manufacturers, at least, plans to increase investment do now appear to be on the increase.  

Business conditions have been on an improving trajectory

In the past two years manufacturers have, on balance seen an improvement in both sales and profitability. A starting point for more ambitious plans to investment in new plant and machinery.

Investment levels on the up 

Almost half of manufacturers in our survey plan to increase the amount they invest in new machinery in the next two years.

BUT average increases look set to be relatively modest, with six in ten companies planning an increase pencilling in growth of less than 10% over the next two year.

HOWEVER, manufacturers investment plans are increasingly much broader than machinery - 70% will also be upping their spend on training and recruitment, 63% plan to invest more on branding and marketing and 55% will increase expenditure on research and development.

It's not a question of plant and machinery OR these areas of intangible investment, manufacturers have to invest broadly and 30% of manufacturers agree that business priorities such as innovation, training and software are becoming more important.

Confidence, capacity and company strategy

The main drivers of higher investment are the need to replace equipment as technology has moved on, signs of capacity constraints as demand has started to pick up, improving levels of confidence and the appetite for many companies to move into new areas of business. More confident manufacturers in our survey are planning to grow their investment plans more rapidly in the coming years.

Economic uncertainty continues to cast a shadow over investment plans for many companies. Indeed, affordability remains a constraint on investment plans as both internal resources and the availability of external finance (particularly for smaller companies) are somewhat limited.

Five point plan for government

Manufacturers are investing broadly and government needs to align its policy priorities with the private sector's wider investment plans. 

Eurozone manufacturing PMI takes a hit in August

George Nikolaidis September 05, 2014 09:20

On Tuesday we had a look at the UK’s manufacturing PMI figures; it’s now time for a glimpse at the state of manufacturing across the English Channel.  Unsurprisingly, the Ukrainian crisis is hurting Eurozone manufacturers as well with the PMI hitting a 13-month low at 50.7.

France and Italy were the usual suspects with PMIs below 50 - indicating contraction in manufacturing activity. France saw its PMI in negative territory for the fourth consecutive month, down to 46.9 in August, while Italy dropped below 50 to 49.8 for the first time since June last year. Spain provided a glimmer of hope with the second highest PMI in the Eurozone (after Ireland) at 52.8, despite slowing down in August.

On the upside, the UK's manufacturing PMI continues to outperform the Eurozone average. While we shouldn’t crack open a bottle of champagne just yet given the dismal state of the Eurozone, the UK has now outperformed Europe’s manufacturing powerhouse Germany for 17 months in a row. On the downside, troubles in the UK’s largest trading partner spill over to the UK in the form of depressed demand for British manufactured products.

Eurozone countries got some relief yesterday when the ECB announced a further cut on rates and an asset buying program short of Quantitative Easing (QE). The ECB measures should help ease credit conditions and combat deflation but whether they will go far enough to fast-track the Eurozone’s painful recovery is doubtful.


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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