EEF blog

Today’s Index of Production release shows the manufacturing sector contracted 1.3% in October and was 2.1% lower than it was in October 2011.

Once again the headline data disappoint as these stats show the effect of the continuing challenges facing the Eurozone and the global slowdown. As our Business Trends survey showed, much of the decline in output is being driven by the Eurozone, with companies with high proportion of their exports going to the EU showing particular weakness. This month was the first time since the end of 2009 that export orders were negative and the first time since 2008 where export orders were weaker than domestic orders.

The official stats are showing a similar story to our Business Trends survey results, with strong sectoral divergence. In fact, if we look back over the course of the recovery we can see that some sectors have performed well despite the challenges facing the economy.

Index of Manufacturing, 2009=100

The transport sectors, mechanical equipment and electrical equipment are showing strong signs of growth while pharmaceuticals, chemicals, rubber and plastics and coke and refined petroleum have performed relatively poorly during the recovery. 

As Lee pointed out in her blog on Monday, economic conditions will continue to challenge our manufacturers. However, there are some positive signs ahead. While the overall outlook is relatively muted, EEF’s Business Trends survey shows investment intentions remain high for the year ahead and some sectors are reasonably positive about the next three months. Our forecasts paint a continuing picture of sector divergence but with most sectors growing in 2013.

The index of production numbers, released this morning, showed that manufacturing grew by 0.1% in the month to July, or 0.5% over the three-month period. Although not an astonishing growth rate, after several disruptions in the last few months, today’s numbers suggest that manufacturing has started the third quarter on a positive footing.

As we reported in Manufacturing Outlook, most manufacturers remain optimistic despite the strong headwinds which have recently hit the sector such as the slowing global economy; supply chain disruptions following the Japanese tsunami; and volatile commodity markets. Manufacturing should return to growth in the third quarter, thereby supporting the UK’s economic recovery.

Our forecasts suggest that manufacturing should grow by 2.8% this year, considerably more strongly than the UK economy as a whole, where growth is forecast at 1.1%. However, the economic outlook does remain uncertain and manufacturers are increasingly concerned by the growing challenges in the global economic environment.