EEF blog

Insights into UK manufacturing

Pay Bulletin in February

Joey Lee February 25, 2014 12:09

Our Pay Bulletin for February was published last week.  It is a monthly comprehensive survey of pay settlements, deferrals 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 figure in January continues the stable level of pay settlements we have seen for over twenty five months. The three-month average pay settlement rose 0.1 percentage point to 2.5% in January. Additionally, both the monthly average and three-month average pay settlements are 0.1 percentage point higher than the annual average pay increase of 2013.


Prefer a graphic? Here is the illustration:

  Source: EEF Pay Bulletin


The Labour Statistics published by ONS last week showed a similar (but more moderate in the pay growth) picture. In the three months to December, pay rose by 1.1% across the whole economy and by 2.5% in manufacturing. If you would like more details on the labour market statistics, please refer to Felicity’s blog.


And what about inflation?
Consumer price inflation fell to 1.9% in January, moving below the target for the first time since late-2009 (the same year of the parliamentary expenses scandal!) The downward movement in the rate was driven mainly by recreational goods & services, furniture & household goods, and alcoholic beverages & tobacco, fairly similar to December.
We expect to see inflation rates drop back over the coming months, and to stay within the 1.5%-1.7% range for most of this year.  Looking at our forecast, we expect January to mark the beginning of a prolonged period of below target inflation, with the large amount of spare capacity forecast to keep CPI inflation below target for the coming three years.

Here is the most digestible form of all the stats above:

  • EEF Three-month average pay settlement ↑
  • ONS Average earnings ↑
  • Pay freezes at its lowest level since August 2008
  • Proportion of deferrals ↓
  • CPI inflation ↓
  • ∴ A more positive economic picture!


Budget 2014

Lee Hopley February 24, 2014 08:32

Budget statements like this one don't happen very often. Usually four years into a parliament we are hurtling towards an election but in 2014 we'll still have another two set pieces from the Chancellor after the statement on March 19th.

That the UK economy is not where we thought it would be at this point in the parliament is not really up for dispute - for example the deficit is coming down, but not as fast as expected in 2010; and growth is picking up, but the better balanced kind is still beyond the horizon. In a speech last week the Chancellor acknowledged some of the challenges the UK economy continues to face:

Britain is not investing enough. Britain is not exporting enough. There are encouraging signs. Both business investment and exports are forecast to grow. But we can't be passive observers of the forecasts.

He noted that the Budget needs to lay the foundations for long-term (economic) security. So what still needs fixing and what should the Chancellor do about it on Budget day?


For manufacturers in all sectors and of all sizes the cost of energy has become the most uncompetitive aspect of the UK business environment. Taxes which push up the price of energy, such as the carbon price support, are unilateral measures which UK-based manufacturers cannot pass through. This must be addressed next month. EEF proposes a three-pronged attack on rising energy costs.

  1. Freeze and then reduce the cost of the unilateral Carbon Price Floor– which was introduced last year as a tax on greenhouse gas pollution to encourage investment in low carbon generation. EEF estimates that the tax on its own will account for almost 10 per cent of a large industrial user’s electricity bill by the general election next year. Industrial consumers in Europe are already paying significantly less carbon tax compared to the UK.   
  2. Shield vital energy intensive industries, like steel and chemicals, from excessive UK energy policy costs by addressing the costs of the Renewables Obligation and Small Scale Feed in Tariffs which add an additional hefty 15 per cent to the bill of a steel company operating in a globally competitive market.
  3. There should also be a commitment to extend all the measures in the current EII package for as long as is required, up to and possibly beyond 2020/21.

Banking, skills reform - you've started, so you'll finish?

For manufacturers considering new investments or expansion in the UK, there needs to be confidence that important reforms to, for example banking and education, don't simply fizzle out as we head into an election. Progress not only needs to be made on increasing competition in SME banking, but progress on improving relationships between banks and businesses must be more transparent.

And critically for a sector that is demand ever higher levels of skills - there must be some light at the end of the talent pipeline.

In this Budget and the Autumn Statement and the Budget after that there has to be a clear agenda on rolling these important reforms forward. Next month this must start with:

  1. Government should set out metrics on the outcomes it expects the banks to be delivering to their customers as a result of the appeals process. These metrics should include not only survey-based measures of awareness, but also indicators of the impact on the demand for finance among discouraged groups.
  2. Following the introduction of the switching service there should be regular reviews of progress on encouraging switching, particularly amongst business customers and whether further incentives, such as a rebate that matched the cost savings made by switching (up to a ceiling or for a limited time), are also needed.
  3. With the Business Bank becoming established as a formal institution it must clearly articulate its role in the market. We strongly support the recent recommendations from the National Audit Office and the subsequent review by the Public Accounts Committee into access to finance for small and medium-sized enterprises, including the outcomes the Bank’s interventions are seeking to achieve, and the objectives of individual schemes and evaluation measures.
  4. Government should look to the Apprenticeship Trailblazers to build on their work to develop into Industrial Partnerships, to take end-to-end responsibility of the skills system. Trailblazers should also be used to give a better approximation of the cost of delivery.
  5. Having committed to routing funding through the employer, government must state the proportion of training costs that will be publicly funded in the future. Employers need certainty and stability if they are to make significant investment in Apprenticeships. Only then can there be informed consultation to devise and develop a funding mechanism that is accessible to companies of all sizes. To be sustainable it is essential that we get this model right.
  6. Funding specifically allocated to engineering companies, as recommended in the Perkins’ Review of Engineering Skills, to help meet their skills needs must be accessible to all, particularly SMEs. Thresholds should be realistic, reflecting genuine training budgets and collaboration between SMEs should be encouraged.

Under review

Continued action on energy, access to finance and skills would provide an important signal to manufacturers that government will continue to pursue a policy agenda that ensures the UK business environment is supporting the competitive ambitions of companies looking to invest and grow.

Looking to the 19th March and beyond there remain some key policy areas that are a drag on the UK's competitiveness, particularly for capital intensive companies. The extension of tax relief for new investments in plant and machinery through the Annual Investment Allowance should also have been a positive spur to investment plans. However, this additional relief will only extend until the end of 2014 and as the Chancellor said we can't be passive observers of the forecasts. If business investment growth continues to fall short of expectations there will be a case for extending the additional relief further.




Summary of business conditions largely positive

Rachel Pettigrew February 21, 2014 16:16

The Bank of England’s Agents’ summary of business conditions points to largely positive economic conditions. Below is a short summary of the report.


Consumption: Retail sales fell in Jan but retailers are expecting modest sales growth in the next few months. Consumer service providers are also expecting moderate growth to continue in 2014.

Housing market: Overall activity has strengthened across the UK and house sales were well above levels seen a year ago. A shortage of properties is narrowing the gap between asking and selling prices.

Business investment: Investment intentions continue to strengthen and firms are more confident about the medium-term outlook for demand. Agents have noted increasing reports of investment in refurbishing or new commercial properties.

Exports: Euro area demand remains broadly flat but overall export growth has been reported to be steady and relatively broad based. Little impact on exports reported from recent appreciation of sterling.


Business services: Growth has largely remained constant in business services.

Manufacturing: Output has continued to rise in the manufacturing sector and we have now seen three quarters of growth. Strong construction growth contributing to pick up in output of construction materials.

Construction: Growth has picked up further following a strong 2013 with house building driving much of this.


Employment has been edging up as productivity and economic activity has improved.

Costs and prices

Labour costs: Labour cost growth has risen moderately. Auto enrolment of pensions is contributing to upward pressure on labour costs.

Non-labour costs: Overall materials cost rises have fallen. Building aggregates and energy costs were the exception. Import cost inflation has fallen partially due to downward pressure from the sterling appreciation and weak euro-area demand.

Output prices and margins: Little change seen in output prices but some improvement seen in margins, although these remain below long-term averages.

Consumer prices: Pressure on consumer prices has eased further, largely reflecting lower goods price inflation. Pressure on disposable incomes also continues to squeeze inflationary pressures.



Government must not restrict manufacturers’ ability to recruit international STEM graduates

Verity O'Keefe February 20, 2014 09:00

Today, we have submitted evidence to the House of Lords’ Science and Technology Committee inquiry into international STEM (science, technology, engineering and maths) students.

In our response, we firmly argue that the Government is acting unreasonably in restricting employer’s ability to access skill non-EEA graduates. We also criticise the decision to abolish the Tier 1 post-study route and argue that the process of recruiting international graduates is time-consuming and burdensome, hampering employers’ efforts to bring in new international talent into their company further.

Our own survey data shows that a quarter of manufacturers had recruited a non-EEA graduate in the past three years (Chart 1 below). There is not always a specific preference to recruit a non-EEA graduate, but often a result of not being able to access the skills domestically.

Chart 1:Manufacturers are recruiting graduates within, and outside of the UK, %companies who have recruited or plan to recruit a graduate

Source: EEF Higher Education Survey 2013/14

However, employers may seek to recruit non-EEA graduates for specific skill-sets such as language skills, particularly those that are seeking to tap into overseas markets.

One in ten manufacturers specifically plans to recruit a non-EEA student in the next year, with seven in ten saying they had never considered recruiting a non-EEA graduate. Whilst then manufacturers rely on international graduates, many do not tap into this talent pool.

This is most likely to be the case if the company is an SME, and may reflect the negative rhetoric surrounding recruiting non-EEA nationals or the real and perceived hurdles in terms of administration and cost of recruiting an international graduate.

There is a real need for Government to make it simpler for manufacturers to recruit non-EEA graduates, as this is currently not the case.

Over half of manufacturers (53%) found the process of recruiting very time-consuming.
Almost half of manufacturers disagreed that the process of recruiting a non-EEA graduate was easy.
Four in ten companies had difficulties securing a sponsorship licence.
Almost half had difficulties obtaining the visa for the graduate.

Yet manufacturers clearly value non-EEA graduates as in spite of these difficulties, a positive balance of 22% of companies say they would definitely hire a non-EEA graduate again.

Chart 2: Manufacturers face challenges recruiting non-EEA graduates, % companies reporting ease of which they recruit non-EEA graduates

Source: EEF Higher Education Survey 2013/14

This reflects the value of knowledge and skills that graduates from outside of Europe can bring to the company, and also the difficulties companies continue to face finding high-level skills within domestic labour market.

Government must then make it easier for firms to recruit highly skilled international graduates, widening the talent pool, instead of restricting it.

  • Government should restored the Tier 1 post-study work route, which previously allowed non-EEA graduates up to two years to seek employment after graduating. This route was closed to new applicants in April 2012.
  • An alternative could be to introduce a route specifically for non-EEA STEM graduates, acknowledging that skills shortages within industries such as manufacturing and engineering are acute.
  • Government must also work closely with business to better understand the hurdles companies face when recruiting a non-EEA graduate, making easier for employers to access a wider range of talent.
  • Government must not seek to restrict graduate entry into the UK labour marker further. Restrictions have already been placed on students undertaking in-study work, and we call on Government not to make further restrictions in this area.

Read our full response here.


Labour market statistics: round up

Felicity Burch February 19, 2014 10:01

Today’s labour market figures showed that the ILO unemployment rate rose slightly to 7.2% in the three months to December. Although this represents a break from the more positive trend we’ve seen for some time, the unemployment rate did fall some way over the course of 2013. In addition today's figures showed employment has continued to rise strongly.

The outlook for employment growth in 2014 remains broadly positive. PMIs for all sectors have shown that companies are taking on employees, and this month’s labour market statistics show that vacancies are on the up. The number of vacancies in the whole economy increased 18% in the year to January, and the number of vacancies in the manufacturing sector increased 8.0% over the same period.

The median independent forecast for the labour market (also released today) suggests that employment will grow by 1.6% in 2014 and the unemployment rate will end the year at 6.7%.

ILO unemployment rate Up to  7.2%
  ILO employment rate Up to  72.1%
  Claimant count rate Down to 3.6%
  Average weekly earnings growth Up to 1.1%
  Average weekly earnings growth (manufacturing) Up to  2.5%

The data also showed there was some modest improvement on average earnings growth, which increased to 1.1% from 0.9% previously. Though still below the rate of inflation, this does suggest the squeeze on incomes is starting to ease off. In the manufacturing sector, the picture is considerably stronger, with average earnings having risen 2.5% over the year. We will blog in more detail about our own Pay Settlements data on Tuesday next week.



Subdued inflation

Neil Prothero February 18, 2014 10:03

Annual consumer price inflation continued to edge down in January, easing to a 50-month low of 1.9%. Following a period in 2010-12 of high and often volatile inflation, the CPI rate has followed a downward trend from mid-2013 and the January reading marks the first time since late 2009 that headline inflation has come in below the Bank of England’s 2% target. However, UK inflation still remains quite a bit higher than average inflation in the euro zone (0.7%).

CPI inflation back below 2% target
(annual rate; %)


Source: Office for National Statistics.

UK consumer prices declined by an average of 0.6% over the month. According to the ONS, the largest contributions to the fall came from lower prices for recreational goods, cultural services, furniture and household equipment—an indication of ongoing retailer discounting.

There was little overall impact on the annual inflation rate from gas and electricity prices, as the recent tariff rises implemented by the "big six" energy companies were of a similar level to those a year ago.

Output (factory gate) prices edged higher in January, but only by a modest 0.9% year on year. The weaker trend in international commodity markets was evident in data showing a further decline in input prices. The overall price of materials and fuels bought by UK manufacturers for processing declined by 3.1% in the year to January 2014, the sharpest contraction in more than four years.

The Bank of England’s latest inflation forecast published last week was benign and we expect consumer price inflation to hover just below 2% over the coming months.

Underlying price pressures remain subdued, against a backdrop of still weak nominal wage growth (real incomes are still being squeezed), limited consumer purchasing power and relatively soft global commodity price trends. Import price pressures will also be contained by the strengthening of the sterling exchange rate over recent months.


Infrastructure spending - 2013 roundup

Chris Richards February 17, 2014 09:38

On Friday the Output in the Construction Industry 2013q4 figures were released, rounding off the picture for 2013. New infrastructure starts by volume increased across the year, and as we pointed out in a recent blog, increased investment in infrastructure is planned to continue over the coming years.

(Click to enlarge image)

The vast majority of this is in rail, as opposed to roads, which in itself faced underinvestment and is a key issue for manufacturers (by a significant margin).

In addition, the figures released report how much was spent, not how well it was spent. We've highlighted before the value for money issue, particularly within local road spending, but this is an issue more broadly, we've made reference to this before but it is worth highlighting what Infrastructure UK's cost review found:

  • 'Sustained uncertainty and the cyclical nature of infrastructure investment in the UK has contributed, over several decades, to a significant shift from fixed to variable resources, i.e. there is a greater use of subcontracting and less direct investment in construction. Lower capitalisation and the higher levels of subcontracting increase the internal transaction costs in the UK, in particular through the premium cost of risk transfer down the supply chain to second and third tier supply chain providers.'

Setting this to one side however, infrastructure spending is slowly moving in the right direction. The best way to get value for money and ensure this acts as a catalyst for business investment both within and outside the supply chain is to ensure stability and certainty moving forward.

The National Infrastructure Plan 2013 finally explained the logic behind each of the 'Top 40 projects', which is something we called for. However most of the public investment as part of this plan is to 2020/21. What will be the criteria and the requirement for projects beyond that? What could we be doing now to ensure we don't retreat toward a stop-start investment approach again?

As we inch closer toward 2015/16 when a new round of funding will be released, now is the time to start setting in motion a framework for national infrastructure planning for 2020/21 and beyond.

Valentine's Day: We Love Manufacturing!

Felicity Burch February 14, 2014 08:00

Happy Valentine's Day! Here's an infographic explaining why we love manufacturing (click on the image to enlarge)

We love manufacturing infographic.pdf (779.99 kb)


What would get more young people into manufacturing?

Verity O'Keefe February 13, 2014 08:30

UK manufacturers make racing cars, jets, space crafts, the Olympic cauldron – yet continue to struggle to get young people interested in the industry.

The latest UKCES Employer Skills Survey found that just 42% of manufacturers had recruited a young person, which in part highlights this challenge.

Those manufacturers that do recruit young people tell us they are the lifeblood of their business, they have the potential to come up with the ideas for the future, designing cars for tomorrow or thinking of new ways to generate cleaner, greener power.

We know from previous surveys that manufacturers work hard to encourage to get young people into their industry, whether this is through offering work experience, giving talks in schools or bring school pupils into their factories or onto their sites. This gives manufacturers the chance to showcase just what they do and what the next generation of manufacturing employees could be working on.

But what would get more young people into manufacturing?

This is a question we recently asked our members, and today we look at the results:

80% of employers think raising awareness of apprenticeships will get young people into manufacturing

With two-thirds of our members currently offering apprenticeships, it’s a sure route into the industry. The challenge however is getting more young people to consider the apprenticeship route. Research by the Royal Academy of Engineering  found that whilst almost half of parents of children aged 11-18 would encourage their offspring to take an apprenticeship, more than one in 10 still maintain that apprenticeships are a second best route to a career after a degree.

63% of manufacturers think STEM-focused initiatives between schools and businesses will encourage young people into manufacturing

There are an array of schemes on offer – Primary Engineer, F1 in Schools, EDT, Smallpiece Trust – too many to list here. We recently called on Government to bring together such schemes on a single portal. The Department for Business are now working towards including such programmes on the Make it Great Britain website, allowing businesses to seek information on such schemes and choose which is best for them. Whilst this is a positive step forward, this tackles only part of the challenge, as we need to encourage schools to get engaged also. Therefore we need to tackle the real, and perceived, barriers that continue to exist between schools and local industry engagement.

60% of manufacturers think schools giving young people specific careers advice will help get young people into manufacturing

Careers provision has come under fire, to say the least. The Education Committee found the quality and quantity of guidance for young people is deteriorating and Oftsed found that of the 60 schools they visited, only 12 had ensured that all students received sufficient information to consider a wide breath of career possibilities. We have been calling for a form of ‘careers inspiration’ to begin in schools, with more informed advice given at Key Stage 3. Then by Key Stage 4 all young people should have access to face-to-face advice from an independent advisor.

33% said bringing back compulsory work experience pre-16 would encourage more young people into manufacturing.

The decision to remove compulsory work experience at Key Stage 4, was somewhat a knee-jerk decision that followed the Wolf Review of Vocational Education. Instead of abolishing it, Government should have worked to focus on the quality of delivery, as many of our members found it highly effective. Work experience at Key Stage 4 and 5 is highly beneficial and should be encouraged at both – giving young people a taster to a specific career such as manufacturing.

28% of employers think increasing the number of University Technical Colleges will get more young people into manufacturing

The roll out of University Technical Colleges (UTCs) has begun, with the majority specialising in STEM. UTCs provide a great pathway for young people into manufacturing careers, by providing learners with a combination of academic and vocational qualifications combined with work experience. What makes the UTCs work for manufacturers is that the content of provision is driven by local industry experts. Such industry interaction is beneficial to the learner in securing employment, and gives companies a pipeline of potential future recruits.

28% of businesses think introducing Tech-Levels will get more young people into manufacturing

Manufacturers have continued to call for a vocational route that is put on the same parity of esteem of A-levels. Tech-Levels present such an opportunity. Such qualifications will only be available if they are endorsed by employers, ensuring they are relevant to the industry (remembering that only one in five manufacturers think that vocational qualifications are more relevant now than two years ago).

25% of manufacturers saw publishing data on school and college leavers as a way to get more young people into manufacturing

The introduction of destination measures will mean schools are beginning to provide such information. This will then show the successes young people have pursuing routes such as Apprenticeships. This will hopefully go some way to overcoming the perceptions of vocational pathways which the RAE found still exist.

So those were a few ideas from our members, and we expect they would have plenty more. If we could just start taking these forward, perhaps the next UKCES Employer Skills Survey would see a significant increase in the numbers of manufacturers recruiting a young person.


Forward guidance on forward guidance

Felicity Burch February 12, 2014 11:41

As Neil said in his blog yesterday, Governor Carney was expected to announce a different approach to forward guidance in the Inflation Report today, particularly as unemployment had fallen far more quickly than expected, and the economy had continued to grow.

Today’s Inflation Report did indeed show a stronger outlook for the economy – with growth of 3.4% expected this year – combined with inflation expected to remain around the target over the forecast period.

Unsurprisingly, then we do have a new approach to setting interest rates; the Bank has published “further guidance on the setting of monetary policy once the unemployment threshold has been reached”.

It’s more complicated than the previous guidance, and a lot closer to the Bank’s old approach of making month-by-month decisions. As Carney pointed out though, while last August saying rates would be on hold for some time was an “easy call” the economic improvements we’ve seen over the past few months mean the UK economy is in a “different place”  and this means the approach to monetary policy has had to change.

Crucially, now – rather than a focus on the unemployment rate – the Monetary Policy Committee will be looking for improvements on a broad front, not just one variable, though Governor Carney said that “headline wish is to eliminate spare capacity over the forecast horizon”.

So what variables will the Bank of England be looking at?

One key move the Bank will make is to increase the transparency around its decision-making and forecasting process. They will be providing greater information about a number of the metrics they examine and forecast. Broadly, the Bank will look at:

The sustainability of the recovery
The Bank will try to determine whether economic growth is broad-based and likely to be sustained. They will look at productivity, real incomes, business investment, availability & cost of credit

The extent to which supply responds to demand
The Bank will also look at the pace at which spare capacity is being used up by examining movements in labour and capital productivity in response to the economic situation

The evolution of cost and price pressures
Finally, the Bank will aim to keep a lid on inflationary pressure, so factors such as wage growth, import price pressures and inflation expectations will affect their judgement.

And what is the likely path for interest rates?

Governor Carney stated the UK economy faces a number of headwinds, as well as less pressure from imported inflation and argued that the medium term interest rates consistent with growth and inflation at the target rate were materially lower than in the past.

Market expectations are suggest we will not see the first rate rises until the first half of 2015, and when they do come Carney was keen to state that any increase in rates was likely to be gradual.


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.

About EEF

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.

Find out more at