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Insights into UK manufacturing

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.

 

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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.

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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)

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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.

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Guiding light?

Neil Prothero February 11, 2014 08:00

It came as no surprise that the Bank of England left its monetary policy stance unchanged at its latest Monetary Policy Committee meeting last week. The nine MPC members voted to hold the policy interest rate at its record-low level of 0.5% for the 59th consecutive month, while also maintaining the Bank’s stock of asset purchases (via quantitative easing) at £375bn.

Nothing to see here? Well, not necessarily. Tomorrow the Bank of England will publish its quarterly Inflation Report, and alongside its revised forecasts for growth and inflation there is likely to be considerable market interest in what the central bank has to say about its much-maligned policy of "forward guidance".

Introduced by the new Bank governor, Mark Carney, just seven months ago, forward guidance followed the lead of the US Federal Reserve by linking future changes in UK monetary policy to conditions in the domestic labour market. Mr Carney stated last August that the Bank would not consider tightening its current policy stance until the unemployment rate fell below 7% (subject to caveats relating to financial stability). At the time the Bank believed that this threshold wouldn’t be met until the second half of 2016. The aim of forward guidance was therefore to reassure the private sector that short-term interest rates would remain at 0.5% for at least another three years, reducing uncertainty and encouraging households and businesses to borrow and spend.

Good intentions

That was the plan. However, since mid-2013 the rapid improvement in a range of UK economic indicators—including a sharp fall in unemployment from 7.8% to 7.1%—has prompted increasing debate, and no little confusion, over the Bank’s monetary stance, rather than the greater clarity that Mr Carney had intended. Bond investors have been pricing in policy rate hikes occurring much sooner than the BoE’s current forecasts suggest, prompting considerable media interest in when UK interest rates may start to rise.

When forward guidance was launched, the Bank of England’s own analysis implied that it viewed the unemployment rate to be the best available indicator of spare capacity, and thus inflationary pressures, in the UK economy. However, as the jobless rate has declined at the same time as headline inflation has eased back to target, Mr Carney and his colleagues have been forced to backtrack from their original guidance message. Indeed, last month in Davos the governor implicitly acknowledged that the unemployment threshold had to all intents and purposes been dropped.

"Members saw no immediate need to raise Bank Rate even if the 7% unemployment threshold were to be reached in the near future" – MPC minutes, January 2014

Although the economy has rebounded unexpectedly strongly over the past year—annual real GDP growth of 1.9% in 2013 was the fastest since 2007—the overall period since the global crisis has seen the UK recovery lag well behind that of most other G7 economies. This latter point is one that the Bank governor, Mark Carney, and some of his MPC colleagues have been keen to stress in an effort to refocus attention away from the simple 7% threshold. Noting that the pick-up in economic activity has come from a very low base and that the level of UK GDP still remains some way below its pre-crisis level, the governor has also highlighted the still subdued trends in real wage growth, on-target inflation and falling long-term unemployment as evidence that there is still considerable slack in the economy. This supports Mr Carney’s recent statement that "the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy".

The debate over spare capacity is not clear-cut, however. A number of economic commentators have noted that a range of labour market indicators—not just the jobless rate—have tightened over the past six months, that productivity trends remain very weak, and that recent survey data point to constraints on capacity and recruitment returning close to pre-crisis levels in some areas of the economy.

Easy does it

Mr Carney has so far appeared to adopt a more dovish stance than some other members of the MPC, although it is clear that a majority of the Committee still see little prospect of a rise in the policy interest rate anytime soon (in line with most independent forecasters, we don’t anticipate any policy tightening until at least early 2015). But with the positive near-term economic outlook expected to support a further reduction in the jobless rate to below the 7% threshold in the coming months, the Bank of England now has little option but to revise its forward guidance policy.

What form this could take is open to debate—options include:

  • lowering the unemployment rate threshold
  • announcing another form of "state-contingent" guidance linked to different indicators
  • revealing individual MPC members’ views on future rates; or
  • specifying an explicit period during which interest rates will remain on hold.

Whatever is decided, Mr Carney for one will hope that it proves to be a more effective and more enduring policy than the Bank’s initial effort.

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Export dashboard: Government can do more to help exporters

Rachel Pettigrew February 10, 2014 10:22

The monthly export dashboard was published today and the most recent trade data shows that exports still have some way to go.

Analysis and dashboard first published in today's Daily Telegraph

On Friday ONS published December’s trade data along with the annual trade figures for 2013. Looking firstly at the shorter-term picture, in the month of December goods exports grew and the goods trade deficit narrowed compared with the previous month. Goods exports growth was also relatively broad based across commodities and regions in the last month of 2013. However, the picture is not as rosy when looking at the quarterly figures, which showed falling goods exports to the EU more than offsetting an increase in goods exports to non-EU markets.

Focusing now on 2013 as a whole, Friday’s figures show that UK exports grew quite modestly over the year expanding 1.4% to reach £501.4 billion. This growth from a broad geographical base and goods exports to both EU and Non-EU markets increased in value over the year by 1.4% and 1.2% respectively. Overall growth was slightly ahead of our own forecasts but falls well short of the annual growth needed to meet the government’s target to grow UK exports to £1 trillion by 2020.

In light of this, what can we expect from export growth for the year ahead? While business surveys have pointed to more confidence in new order intake from the domestic market, we are seeing signs that export demand will gather pace through the course of this year and can expect official data to follow suit. Manufacturers are more positive about 2014 prospects than they were about growth and opportunities for 2013. According to EEF’s Executive Survey 2014, export sales are expected, on balance, to increase and emerging market demand for products was identified as the greatest opportunity for 2014, with 39% of companies saying they expect it to be a source of growth.

A recent report ‘Tracking the Export Journey’ published by EEF, in conjunction with Barclays, shows clear ambition by manufacturers to grow their exports. It also highlights the challenges companies face in doing so – there are no hard and fast rules about the best way to enter new markets and it demands considerable time and commitment. However, those who are successful in exporting are ultimately rewarded with better performance and a diverse and resilient customer base.

Doubling UK exports by 2020 requires not just getting more companies to export but the government helping to provide a route into faster growing but less familiar markets. The government needs to do its part by creating a competitive business environment and highlighting the benefits of UKTI to those interested or involved in exporting.

Output and trade - 2013 round up

Lee Hopley February 07, 2014 11:23

ONS published full year statistics for manufacturing output and trade today.  

  • Manufacturing output fell 0.6% in 2013.
  • Growth was reported in three out of four quarters.
  • The headline fall conceals sector growth ranging from 8.8% in transport to an 11.6% fall in mechanical equipment.

The overall production figures for 2013 were a touch weaker than indicated in last month's GDP release. Growth in December came in a bit weaker than the earlier estimate suggested and there were some revisions to output earlier in the year.

However, the quarterly profile of growth across the sector last year does look consistent with the survey data, including EEF's Business Trends Survey. Taking expectations from our survey and the early PMI indications for 2014 so far we should expect the positive profile of out to roll forward into 2014q1. Our latest forecasts point to growth of 0.6% across manufacturing in the first three months of this year.

Exports up in 2013

We did see more positive numbers on 2013 on goods trade, which was up 1.3% on the year. Not bad, but not good enough if we're aiming for £1 trillion of total exports by the end of the decade. Sales to both EU and Non-EU markets also rose on the year, by 1.4% and 1.2% respectively.

Over the course of last year there have, however, been a couple of interesting shift in the destination of UK goods exports. While our nine biggest markets are unchanged the growth areas have clearly been China, India and the United Arab Emirates. And growth in exports to Europe conceal a patchy performance by individaul markets with falls in sales to Germany and Belgium, being more than made up for by increased exports to Ireland and France.

  •  
    • US tops the table with exports of £40.9bn in 2013.
    • UAE enters UK top export markets at number 10.
    • China remains one of the fastest growing export destinations with growth of 18% last year. 

 

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17 killer facts on the UK airport capacity crunch manufacturers want you to know

Chris Richards February 06, 2014 08:29

1. We need a model of growth based on more businesses exporting and investing, rather than the narrow foundations of consumption, which has underpinned growth over the previous decade.

2. The UK is still some way off the target set for annual value of exports…

Just £502.6bn in the year to November 2013 against a target of £1 trillion

Net trade was a -0.9% drag on growth over the three months to September 2013, however 55% of manufacturers expect export sales to grow in 2014

3. While business investment is still down on pre-recession levels (although we forecast this to start getting better this year)

There has not been two consecutive quarters of expansion in investment since the first half of 2009 and it remains a quarter down on 2008q1.

4. Manufacturers need to cut export deals in new international markets, face to face meetings are crucial as part of this

Question: To what extent does your company agree that video conferencing, or similar communication technologies/devices, will be able to substitute face-to-face contact for the following business activities in the next five years? (balance of response)

5. Existing markets such as Europe are also very important

6. 47% of UK business investment is accounted for by foreign owned companies

7. For this group the quality of infrastructure provided, such as airports, is the 4th most important consideration when choosing where to invest

8. Despite just 1% of UK exports by weight going via air, this represents a whopping 38% when compared by value. This is a value to weight ratio of nearly 75 versus sea. (DfT: The air freight end to end journey)

 

9. The majority of this is high value, low volume manufactured goods such as machinery, aircraft parts and engines (DfT: The air freight end to end journey)

10. Air freight goes in two ways bellyhold (i.e. in the belly of wide bodied passenger aircraft) or by integrated air freight (e.g. companies like DHL and FedEx)

67% of air freight exports by weight, is sent bellyhold

11. Heathrow dominates bellyhold traffic, due to the range and frequency of long haul routes

12. Additionally, 15% of UK air freight traffic is aircraft to aircraft transfers – maximising cargo space on routes and again relying on a range of destinations from a single site hub (for security reasons). The majority of this ‘transhipment’ happens at Heathrow.

13. UK trade with China is growing, but Heathrow is basically full. Gatwick, which is also adding routes to China and other destinations, is also approaching capacity

14. Manufacturers view this issue as too important and urgent to take a punt, less than 10% of South East manufacturers back any kind of new London airport, South East manufacturers back expansion at Heathrow (and other London airports)

15. Compared to other ‘global’ cities, the UK’s major airports are privately owned. ‘Airports will not choose to finance and build additional capacity, a fixed asset, unless they are confident it will be utilised. This also means little need for public money.

16. The Airports Commission recommended expansion at Gatwick or one of two options at Heathrow, which we back.

17. Businesses need certainty on the direction of travel in order to make investments and more effectively plan export strategies. Leadership is now needed from political parties, setting out where they stand on these proposals.

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

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