EEF blog

Insights into UK manufacturing

Manufacturing PMI: the sixteenth month of growth

Felicity Burch July 01, 2014 09:41

The latest PMI continues the positive run of indicators for manufacturing seen so far this year. June's PMI came in at 57.5, up from 57.0 in May. This rounds off a strong second quarter and manufacturing remains on track for strong growth in 2014. 

A sixteenth month of growth for manufacturing
Manufacturing PMI: 50 = no change

To date this year we had seen the domestic market leading the charge, but this month's PMI shows that inflows of new export business strengthened over the month. It is encouraging that new orders from overseas markets are now coming through; we’ve seen a big focus on new product and service innovation across industry over recent years and this survey provides a bit more evidence that this is paying off, with companies securing new business off the back of it.

There is also positive news on employment growth; official statistics show that workforce jobs in manufacturing have expanded for five consecutive quarters, and today's PMI suggests companies are continuing to expand their workforce. However, this is not without its challenges, and securing the right skills is an increasing concern for some companies.


Preview: Local Growth Deals

Chris Richards June 30, 2014 10:39

This time next week we should (if all goes to plan) gain our first insight into how the chips have fallen in the allocation of the Single Local Growth Fund and what powers will have been devolved through the Local Growth Deals to Local Enterprise Partnerships.

The recently completed Wave 2 City Deals provide an insight into the kinds of things that may be devolved through Local Growth Deals as both should have as their reference document the relevant Strategic Economic Plan for each LEP area.

Across the Wave 2 Deals there was a general focus on infrastructure, a welcome sign from our point of view, along with a focus on other place based challenges such as housing supply and bringing land into use.

In most areas there is a commitment to tackling youth unemployment (which we would argue is also a placed based challenge) and a focus on improving the coordination of business support across local authority boundaries.

The figures for job creation in each City Deal should be taken with a pinch of salt given the recent report by the NAO into the Regional Growth Fund and Enterprise Zone job creation figures.

We've argued before that LEPs should really try to find other metrics that they have a direct impact on, if they are to demonstrate the impact of their programmes - jobs and GVA growth, while relevant, are difficult to directly attribute to their actions.

Significant numbers have been proposed for apprenticeship starts, we believe a watchful eye should be kept on this to ensure quality is prioritised over quantity. Too often when a measure becomes a target over time it fails to remain an effective measure.

The intangible benefits that can arise from greater cooperation between local authorities, to deliver more than simply on their own, is also evident in these Wave 2 City Deals.

Milton Keynes decided to incorporate their City Deal asks into the South East Midlands LEP Local Growth Deal submission rather than do one separately, so intertwined are the two processes. Others such as Bournemouth, Reading and Plymouth expanded their City Deals to take the opportunity to look at economic development beyond just their borders.

Outside the City Deals process, the newly created Combined Authorities in Liverpool the North East, Sheffield and West Yorkshire are welcome signs, as are the local authorities who have taken the step to come together and create a 'pool' to combine their associated gains from the business rate retention scheme.

Taken together this is a good start which will allow LEPs to prove themselves for more to be devolved in the future.

The alternative scenario is a big bang approach which places greater strain on LEPs to deliver more, at a faster pace. Should they fail to then live up to these increased expectations greater central government pressure could ironically see local plans being driven by central government targets as more would be at stake if plans fail to deliver.

What will pension reform mean for manufacturers (and me) ?

tthomas June 27, 2014 08:45

 Many EEF members will be breathing a sigh of relief having overcome the challenges of auto-enrolment. Auto-enrolment has been a major cost and challenge for manufacturers, even though three-quarters of them already had some form of occupational pension provision. Businesses have had to absorb many costly business process changes, and HR professionals now have to look forward to their continuing duties, re-enrolling workers who opted out and dealing with new-starters. For them, some of what’s written here will not be good news.

EEF supported the principle of auto-enrolment, was critical of some of the process, but its useful to remind ourselves of why we are where we are. In the UK, we have an ageing population – life expectancy is increasing, and we have a pay-as-you-go state pension. In other words, what today’s workers pay in by way of national insurance, is paid out again to today’s pensioners. There is no national pension saving scheme. But as life expectancy increases, pensions, including the state pension need to stretch ever further. There are only two answers – pay in more to your pension and work longer.

This is why in additional to auto-enrolment, employers  need to get ready for a raft of pensions changes, many of which will come into force before the end of 2015.


Auto-enrolment will inevitably create a huge number of small pension pots. Every time a worker moves jobs, they will in all probability leave one pension and join another. Lots of small pension pots give poor value to the worker, so Government has come up with a scheme called “pot-follows-member”.  What this means, simply, is that when a worker joins a new employer, their existing auto-enrolment pension pot will follow them to the new scheme. For employers, it’s going to mean more administration and more questions from their workers. Is it always in the worker’s interests to move their pot? How will it be valued? What if the worker doesn’t want to move their pot, but then later changes their mind? Employers will need to be ready for the changes – most won’t know anything about the changes, yet.

But “pot-follows-member” is only one of a number of changes on the way.

What about the Budget announcements? 

The budget heralded seismic changes in the way that workers can draw down their pension fund, allowing them much greater flexibility to decide what they do with it and what they spend it on. No longer is the annuity the only game in town for most. Manufacturers have an ageing workforce – for many businesses over half their workforce is over 50.

What will this mean?

Could it mean a rash of highly-skilled engineers retiring next year – there is no default retirement age, so workers can for the most part decide for themselves when they leave. What would this mean for the skills shortage?  Or will workers save as much as they can, stay on later, and then buy a luxury car or travel the world on the back of their pension pot. The wider economic impact of this change are equally unclear – pension funds are major investors – if workers en masse draw down their pension savings, what will this mean for investment?

Currently, for workers with a defined contribution pension pot, the current average value is under £50k – no-where near enough to retire on (Back to working longer and saving much more.)

Employers will also be forgiven for not spotting administrative changes which the Government has announced. New rules to ensure that pension schemes are better managed are on the way, and pension charges are to be capped.  Whilst this may be in the long term interests of workers and employers, short-term, many businesses will see this as constant change.

Sure you know everything about pension reform? 

And lastly, how many employers know about state pension reform? The second state pension, (to many SERPS or S2P), is to be abolished, and a single tier state pension introduced. But in today’s money, it will only be worth around £144 a week. The state pension age is to rise again in the future – 68, with every chance that as life expectancy increases, the state pension age will as well. Undoubtedly, for many, the response will be simple – work longer.

For employers, the message is clear – these changes are as large as auto-enrolment – be ready for them and think, again, about how you manage older workers.


Government's role in supporting innovation

Felicity Burch June 26, 2014 09:36

The Wright Review of Advanced Manufacturing in the UK and its Supply Chain will be released tomorrow. One major strand of the review is innovation, so ahead of this I thought I would look at the role that government can play in this space.

The government has a key role to play in partnering with industry to support innovation.

A range of evidence suggests that public-sector funding of science and innovation can “crowd in” private-sector investment in R&D. For example, a recent report by CaSE looks at the impact of public sector-provided research grants. It finds that researchers who receive such grants are more likely than non-grant holders to be "outward facing" and have research applied in a commercial context.

Encouraging engagement between the research base and companies is a key way government spending can boost the effectiveness of innovation. Take the example of Knowledge Transfer Partnerships (KTPs), which place recently qualified people into companies, while maintaining links with their universities. A review of KTPs by Regeneris found that a range of businesses’ ambitions for innovation would not have been achieved without KTP assistance.

The value of innovation support for boosting growth is recognised by companies too: manufacturers identify additional innovation support as a key way to boost the growth of the sector. In EEF/GfK’s survey Make it in Britain, 26% of manufacturers said that more government support for commercialising new technologies would encourage their company to expand manufacturing activity in the UK.

The government is aware that its spending has the potential to boost innovation.

A report published by BIS earlier this year showed public investment in R&D plays a crucial role in boosting business expenditure on R&D, not only through the direct funding of science and innovation but also because there is potential for public investment to drive virtuous circles of private investment and innovation. This report also points to the possibility that – given relatively low levels of expenditure on R&D in the UK – there could be increasing returns to additional investment on R&D.

Next month we will publish the EEF/NatWest Innovation Monitor 2014/15, which will include recommendations on government's role in boosting innovation support. Keep an eye out on the blog for more details. 


Guest Blog - by Mike Houghton, Director of Industry Services, Siemens

Guest Blog June 25, 2014 09:08

Mike Houghton is Director of Industry Services at Siemens


Manufacturing is changing faster than ever before. The drivers for this include globalisation, personalisation, time-to-market and sustainability. Domestic manufacturing interest or localisation has become apparent all over the world as nation states seek to maintain or grow their manufacturing footprint. 

Energy and resource efficiency increasingly impact competitiveness, even in developing economies which are adopting automation technology at rates that look set to further their traditional cost advantage.  Complexity is on the increase too with the amount of data generated through design, production and the supply chain growing exponentially. 

To respond to these challenges and address the need for shorter innovation cycles and greater manufacturing flexibility, industrial technology and the skills to implement it are becoming ever more important.

The UK has historically under-invested in technology such as automation but it is increasingly evident that technology and innovation plays a central role if we are to realise our aspiration to rebalance the economy in favour of high-value and customized manufacturing and production. 

The UK Government has embarked on a headline Industrial Strategy underpinned by specific initiatives such as enhanced capital allowances for automation and ongoing support for industry-led training schemes

To boost UK manufacturing and employment and as a means of achieving a greater import/export balance, further international investment in Britain is vital.  With in-creased foreign investment comes an improved capacity to both produce previously imported goods at home, and export these goods to the rest of the world.

To ensure Britain remains an attractive investment target, domestic advancements in research and development, progressive green technology, high-speed transportation and other new technologies such as additive manufacturing and automation technologies must be championed.

If Britain can continue to make head-way in new technologies, we will ensure investment continues to come to our shores. These are the technologies such as renewable energy and digital design that will ensure the UK as a nation maintains its competitive advantage. More jobs will be created, greater regional growth achieved and the UK's trade deficit positively reduced.

Britain must ensure it provides the most attractive in-vestment environment as possible through continual development of new technologies, and maintain a stable framework for longer-term business decision-making and confidence. If it can do so, the possibilities are vast.



Guest Blog – Michael Straughan, Member of the Board for Manufacturing, Bentley Motors Ltd

Guest Blog June 24, 2014 09:00

Michael Straughan is a Member of the Board for Manufacturing at Bentley Motors Ltd

This afternoon it will be a great pleasure to welcome members of the EEF Main Board and members of the media to our famous headquarters in Crewe, as part of Manufacturing Week at the International Festival of Business over in Liverpool. I hope that they enjoy their tour and will leave with an appreciation of the fine craftsmanship that goes into each car we produce.

Last year was a record year for Bentley in terms of volume and profit. It was hard work but the spirit within the company was incredible, from a personal perspective it was one of the most enjoyable periods in my 30 year association with the automotive industry.

There is no doubt that recent success for Bentley has brought new confidence to the company, and this is reflected in our parent company, the Volkswagen Group’s decision to place its faith in Crewe with the announcement of an £800m investment to build the world’s first luxury SUV.

Securing the SUV was the result of hard work from all involved, and moving forward, it’s important that we don’t get complacent. It proved that there is a strong case for manufacturing in the UK, particularly given its competence for traditional skills, critical for us here in Crewe and something we are working hard on to make sure is passed down through generations.

At Bentley we have re-designed our approach for manufacturing apprentices. This includes the introduction of dual education; a more tailored method to vocational training based on competence profiles related to specific job roles.

At school level, Bentley is supporting the application for a University Technical College in Crewe. We believe the key strength of the UTC format is that it allows businesses such as ourselves to help design the curriculum ensuring that we are giving young people the skills we know they need to succeed in the work environment.

Bentley is the most sought after luxury car brand in the world, a feat I believe is indicative of the world class automotive industry we have here in the UK.


Pioneering Great British Products

Terry Scuoler June 23, 2014 09:00

Today's blog is by Terry Scuoler, Chief Executive of EEF

Recognising our great tradition of inventing and manufacturing pioneering products will lay the path for future innovation 

Today I will be in Liverpool at the Life Sciences University Technical College, launching a new report which celebrates Britain’s great tradition of inventing and manufacturing pioneering products. This venue is fitting as the UTC is located in a former sugar mill. The building is ‘industrial chic’ at its best – you can feel the history written into the heavy stone walls and the old wooden floors.

But while getting this glimpse of our industrial past, you are also brought face-to-face with the future. The UTC is a leading school that is equipping young people with the right skills and mind-set to be world-class innovators, problem-solvers and solution-makers. 

Similarly, our report isn’t just a celebration of past glory. It is also forward-looking – identifying five new inventions that could be future game-changers. It demonstrates that our heritage is still alive and that inventiveness and resourcefulness are in our collective DNA.

It also raises some challenges. It identifies that Britain’s role in creating some of the most-widely used, every-day inventions, such as the telephone, the TV and the jet engine, is not fully recognised by the public. There is a worrying lack of awareness of what British inventiveness has contributed, and continues to contribute, to the world.

To me this emphasises the fact that we fail to champion and celebrate our successes, or indeed to fully capitalise commercially on them. We are denying our future generations of the heroes and heroines who could encourage them to learn the science, technology, engineering and maths skills required to invent, design and innovate.

This lack of recognition means that only half of consumers think that Britain is good at both inventing and manufacturing. No wonder so few children are choosing a career in industry today.

Our ability to innovate in the future hinges on the talents of our young people. We need to inspire them and this starts with giving rightful recognition to our great inventors and giving young innovators every reason and encouragement to want to follow in their footsteps.


Pay Bulletin in June

Joey Lee June 19, 2014 12:50

Our Pay Bulletin for June was published yesterday.  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 2.5% year on year in May, the same level as the previous month. Our data is consistent with the average level of settlements we have seen since the beginning of 2011.

Source: EEF Pay Bulletin

The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trends in the broader economy. In the three months to April, pay rose by 2.0% year on year in manufacturing, a drop of 1.1 percentage points from the three months to March; whereas in the whole economy, pay rose by just 0.7%, a drop of 1 percentage point from the previous month.

And what about inflation?

The annual CPI inflation rate was 1.5% in May, a slip of 0.3 percentage point from April, hitting the lowest level since October 2009. The downward pressure was mainly contributed by transport costs, air fares in particular, and the weaker trends in food and non-alcoholic beverages prices. This decline was marginally offset by higher motor fuels and reaction & culture prices.

To summarise, here is an interactive graph comparing annual growth rates in average earnings and consumer prices:


Source: ONS

As shown above, pay growth in manufacturing (red line) has consistently exceeded average wage growth for the whole economy (blue line) since the second half of 2012.  The recent slowdown in wage growth largely reflects one-off base effects associated with the timing of bonus payments in 2013. Underlying trends in manufacturing pay remain stable and above the CPI inflation rate (green line), pointing to further moderate real wage gains over the coming months. This contrasts with the picture for whole-economy earnings, which are still struggling to keep pace with the average rise in consumer prices.

Looking ahead on inflation, we expect to see a modest upward impact from base effects in the June data. Moving into the second half of 2014, we have revised down slightly our inflation forecast to 1.6% for this year as a whole, and 1.5% in 2015. This is based on the feed-through of the stronger pound, and the prospect of the Bank of England raising interest rates sooner than previously thought. Inflationary pressure along the supply chain from commodities or manufacturers will remain subdued, as previously reported, with spare capacity continuing to bear down on margins and wages.


June MPC meeting – summary of minutes

Neil Prothero June 18, 2014 13:37

As Lee highlighted in her recent blog, a marked shift in tone by the Bank of England Governor, Mark Carney, in last week’s Mansion House speech has generated more debate about when the central bank is likely to begin to hike interest rates.

Mr Carney had previously pushed a consistently dovish message, regularly highlighting headwinds to the recovery such as subdued wage growth, weak productivity trends and estimates of ample spare capacity in the labour market as reasons why Bank Rate could remain at its historically low level. However, last Friday’s speech—in which he stated that interest rates could rise sooner than markets were expecting (that is, before the end of this year)—was far more hawkish in tone. One possible theory for this change of heart was that the balance of opinion among the nine members of the Monetary Policy Committee (MPC) had shifted more clearly towards a tightening of monetary policy.

For now at least, this does not appear to be the case. The minutes published today of the June meeting of the MPC showed that all nine members once again voted to maintain the Bank Rate at 0.5%. And while the decision was said to be "more balanced" for some members, the overall tone of the minutes was less hawkish than many had expected following Mr Carney’s recent comments. The report again emphasised the weak trend in wage growth and the downside risks to domestic inflation, and noted that "it would be necessary to see more evidence of slack being absorbed before an increase in Bank Rate would be warranted".

All in all, the view from the Bank remains fairly nuanced, no doubt in part reflecting the divergence of opinions among some members of the MPC. The June minutes suggest that the Bank is now in the process of trying to communicate to investors, businesses and households that a rise in Bank Rate before the end of 2014 is more likely than had seemed the case a few months ago, but is still by no means a done deal.

Here’s an overview of the main economic developments and issues noted in the minutes.

The decision

The minutes confirmed that all nine members of the MPC voted to maintain the Bank rate at 0.5% and the stock of purchased assets at £375 billion at the meeting on June 5th.

Global outlook

  • Weaker output in US and Eurozone in first quarter, but MPC judgement still that global expansion will be sustained.
  • Markets had broadly expected announcement of rate cuts and lending boost from European Central Bank.
  • US bounceback expected in Q2 after poor weather, but signs that housing market had weakened
  • Chinese growth remained subdued. Q1 rise in activity in Japan ahead of April consumption tax rise.
  • Modest rise in oil prices; decline in agricultural commodity prices.

Financial markets

  • Low volatility in most asset markets, amid growing evidence of investors searching for yield.
  • Global equity markets had strengthened. Robust demand for corporate and bank debt.
  • Date at which the first rise in Bank Rate was fully priced into markets had moved forward slightly to Q1 2015.
  • Sterling effective exchange rate had reached a post-crisis high during the month, but still broadly similar to level at time of May meeting.

Domestic market

  • Business surveys continued to point to strong near-term UK growth. Bank forecasting 0.9% GDP growth in Q2, easing back slightly to 0.7% in Q3.
  • Breakdown of Q1 GDP showed robust growth in household consumption and business investment, but sharp fall in government investment.
  • Housing market activity appeared to have weakened since the start of the year.
  • Reforms associated with the Mortgage Market Review (MMR) had probably played a role, but also signs of weaker housing supply.
  • Indicators suggested robust consumption growth in Q2: strong retail sales and buoyant consumer sentiment.

Prices and costs

  • Balance of companies surveyed by Bank’s Agents had reported falling profit margins over past year, but margins expected to recover gradually.
  • Inflation expectations remained subdued.
  • Unemployment rate had edged lower and employment had continued to grow strongly.
  • Wage growth remained subdued and surprisingly weak in last release.
  • Survey data pointed to faster rises in pay than in official data.
  • MPC expected wage growth to accelerate gradually as productivity improved and as slack was reduced.


Inflation — Key points

Neil Prothero June 17, 2014 10:51

Recent comments by the Governor of the Bank of England may have added to the confusion over the outlook for monetary policy, but as far as inflation is concerned the picture remains benign, with official data showing subdued price pressures across the economy.

Annual consumer price inflation eased in May to a 55-month low of 1.5%, down from 1.8% in April and below the Bank of England’s 2% target for a fifth successive month. The headline CPI rate has followed a gradual downward trend since the middle of last year, despite the period of robust economic activity. We forecast inflation to average 1.7% in 2014.

CPI inflation down to 1.5%
(annual rate; %)

Source: Office for National Statistics.

Key points

  • Lowest CPI inflation rate since October 2009.
  • Largest contribution to the fall came from lower air fares, following Easter spike.
  • Other downward price effects from food, clothing and footwear.
  • Modest upward contributions from higher prices for motor fuels, recreation and culture, and alcohol.
  • RPI inflation measure at 2.4% y/y.
  • CPIH measure (includes owner-occupiers’ housing costs) up 1.4% y/y.

Little evidence of supply chain price pressures

Our latest Pay Bulletin showed a continuation of the broadly stable trend in above-inflation manufacturing wage growth in May. While some business surveys have indicated a recent modest firming of pay pressures in parts of the wider economy, the degree of underlying slack in the labour market is expected to keep overall wage growth in check, prolonging the weak trend in real disposable incomes. The current period of softer emerging market demand and the relative strength of sterling will continue to weigh on global commodity costs, not least energy and food prices, with the latter also dampened by an ongoing price war among the main UK supermarkets.

Output (factory gate) prices edged down slightly on a monthly basis in May, and were up just 0.5% compared with a year earlier. Reflecting the subdued trend in commodity markets, input prices of materials and fuels bought by UK manufacturers for processing declined for a fifth successive month in May, and were down 5% compared with a year earlier. This may not be sustained in June, however, given rising uncertainty over developments in Ukraine and Iraq, which could push up near-term energy prices. 


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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