Manufacturing data crunchers (inlcuding EEF's Economists) have been busy releasing a number of surveys and forecasts for manfuacturing today. 

Our Economic Prospects report started with a review of the stronger than expected performance of UK manufacturing so far this year.  Since the sector exited recession at the end of 2009 we've seen robust and broad-based growth across manufacturing boosted by a bounce back in global demand, a weaker exchange rate and restocking.  There has also been a particularly big rebound in trade with emerging BRIC economies. 

Overall, the first half of this year has been one of the strongest since 1994.  The buoyant run of data continued today with the manufacturing PMI pointing to a solid start to the third quarter.  July marked the 10th consecutive month of expansion with the output component of the index running well above its long-run average.  However, in the past couple of months new export orders have begun to moderate. 

This is one of the reasons why our report flags the likelihood that the remainder of this year won't necessarily be plain sailing.  Many of the risks that were around in the early days of the recovery still linger.  It's taking longer than hoped for credit conditions to return to more normal levels and while we've got more certainty over the coalition's approach to fiscal consolidation, we've yet to get the detail on where looming spending cuts will bite.  And the prospects of a faltering recovery in Europe and other developed markets have grown - presenting one of the bigger risks to a sustained recovery. 

Our central forecast is for manufacturing growth to continue this year and into next, with exports remaining an important component of that expansion.  This should help with the much-needed economic rebalancing.  But investment, which is not forecast to start growing again until 2011, is the missing link so far.   

Ahead of next week’s crucial Budget, we try to indentify some of the key issues which are most likely to affect our members.

As the disruption from volcanic ash enters its sixth day we're starting to pick up some of the immediate and potential impacts this could have on UK manufacturers.  Inevitably the closure of airspace across large parts of Europe has left business people as well as holiday-makers stranded - EEF has produced some information for companies dealing with the consequences of this. 

But the effects are wider than this.  Our Manufacturing Advantage report showed that in the past couple of year around 30% of manufacturers had increased the number of overseas suppliers they use and more than half of companies said that customers are increasingly located overseas.  This has led to companies making some formal assessment of supply chain risk on average once a quarter.  Our survey also showed that manufacturers had identified strategic supply chain failure, logistics problems and supplier disruptions as potential risks to their global supply chains. 

While a large proportion of trade is by sea, road and rail, air freight is used for transporting samples, spares for maintenance contracts and some overseas orders - inbound and outbound.  Some disruptions to these activities have been reported and we may not know the full extent of the impact of this for some weeks.  At the moment companies that use air freight are seeking alternatives and extra storage for orders.  There are some concerns that letters of credit may need to be renegotiated.  Others have been impacted by international sales visits and attendance at overseas trade fairs being suspended.      

Some flights are now operating out of UK airports.  If normality returns to the skies shortly the economy wide impact of the disruption should be short lived, but seismic activity along the North American and Eurasian plates is proving difficult to forecast. 

UK exporters saw a return to better form in February.  National Statistics data show a rebound in sales meaning that the value of manufactured exports was up 6% in the past three months compared with a year ago.

'Rethinking growth - the building blocks of an export-led recovery' is our latest report and it shows that manufacturers have been making good inroads into export markets, leaving the UK better placed to take advantage of an upturn in the world economy.  But an export-led recovery won't necessarily happen on its own.  Exporting is a team game requiring ambition from manufacturers, a collaborative approach from banks to provide the finance and the right foreign exchange risk management tools and world class export support services. 

Manufacturers have expanded their global outlook - more than 90% are involved in export and over the past four years our survey notes further progress in in tapping into new and emerging market opportunities - especially in the Middle East and Asia.  Many manufacturers rely heavily on overseas markets with over 40% of companies deriving more than half their turnover from export sales.  And the increased diversity of export markets helped cushion the blow of the global downturn for some.

However, changes have had to be made in response to the changed economic environment and more than half of companies have re-thought their export strategy.  However, a number of hurdles could still stand in their way - particularly the uncertainty around exchange rates and volatility of Sterling. 

Despite this, the long term ambition for the vast majority of manufacturers (80%) is to continue to extend their reach into new export markets.  This is critical given that many of the UK's traditional markets in Europe are tackling many of the same problems as Britain and are likely to grow slowly.  We will only see a sustained export led recovery if manufacturers continue to diversify into emerging markets.  Achieving this depends on continued access to high quality export support services provided by UKTI to help sell the sector abroad.

The foundations for recovery are there, and if we are to rebalance the economy the next government must build on these and ensure the funding tap for essential trade support services is not turned off.

All the manufacturing data finally seems to be aligning and pointing to a pretty good first quarter for the sector.  Today's industrial production data from National Statistics show manufacturing output at its highest level since December 2008 and up 1.3% from a month earlier - more than reversing the dip in January.  Virtually all sectors saw some growth.  So following January's blip, the recovery in manufacturing looks like it's firmly back on track.

Tonight we'll see the first live, televised debate of the election campaign.  Alistair Darling, George Osborne and Vince Cable will square up to discuss the big economic concerns of voters.  As we have seen already this year the economy and repairing the public finances are a central battleground for the parties.  All three prospective Chancellors should remember that businesses are taxpayers and everyone from the CEO down has a vote.  Not only that, but businesses will become even more important in generating wealth and creating job as the squeeze in the public sector kicks in over the next parliament. 

While we're starting to hear much more about the importance of rebalancing our economy - focusing more on innovative and productive companies, and those with strong exporting potential, such as manufacturing, there is considerably less said about the role of tax in supporting this process.  Earlier this month EEF published its manifesto in advance of the election - calling for the next government to think and act differently.  Today EEF is publishing a manifesto for tax - again asking the next government to think and act differently when it comes to tax reform.

Manufacturers want a tax system that is internationally competitive and has a clear sense of direction.  A myriad of changes, not always with sufficient consultation, and a lack of understanding about what makes modern manufacturing competitive in the UK has left the corporate tax system tilted against manufacturers.  EEF's package of proposals seeks to address that imbalance and create a tax system that supports investment and innovation, is internationally competitive and reduces the unpredictable legislative churn that adds to the burden on companies.  

Some issues the next government should tackle immediately - both to send a strong signal to companies that the UK should be the location for their next investment and also to tackle the deficit.  Other measures, however, will need a more considered approach. Some of our recommendations include:

• Modernising the capital allowances regime.
• Making the R&D tax credit easier to claim and reflect a wider range of costs. 
• Creating a more sustainable CGT regime.
• Reducing the headline rate of corporation tax over time.
• Signalling that the 50p rate of income tax is a temporary part of the tax system.
• Reducing the number of hard choices on public spending by increasing VAT. 
• Improving relations between HMT and HMRC and businesses.
• Prioritising areas for simplification which will genuinely reduce burdens on businesses.

You can read see our full package of proposals here.  We will, of course, be watching tonight's debate with interest to see which of the parties is ready and able to tackle the weaknesses in the tax system and do what is needed to kick-start long term investment and growth. 

The Chancellor's Budget statement contained few surprises - as you might be able to tell from our ealier predictions. But the lack of surprises will come as a relief to both manufacturers and the market. Tax receipts from the first few months of the year were better than expected as were labour market conditions - both pointed to an undershoot in borrowing this year. And the Chancellor confirmed that public sector net borrowing (PSNB) would be £11bn lower in 2009/10 and follow that trend in subsequent years.

Six weeks ahead of an election there was always going to be the temptation to spend, but even though the deficit is lower than expected there is still a significant hole to fill. A detailed plan on tax and spending was unlikely this close to an election. Aside from some detail on departmental efficiency savings businesses will face no more and no less uncertainty about fiscal consolidation than before the statement.

The other downward revision announced by the Chancellor was for GDP growth next year. HM Treasury still expects the economy to grow by 1.25% this year - in line with our forecasts. But the forecast for 2011 was cut from 3.5% to 3.25%. This still looks optimistic against a consensus view of 2.1%. Expectations on household spending and business investment growth next year have moderated. Nevertheless forecasts point to a fairly strong bounce back next year. Given uncertainty about lending and moderate disposable income growth, there are some risks to these forecasts.

In terms of the measures announced, the overall package was broadly neutral this year. And the funding for new policies will come from a combination of asset sales, reprioritisation of existing budgets or the private sector. Some announcements were inevitably politically driven, and some may well be short lived.Overall there was little that will substantially change the short outlook for the economy.

Given that this statement is unlikely to rouse much excitement, perhaps we should have another in about 100 days?  You can read our full briefing here.

In a few hours the Chancellor will deliver his final Budget statement before the election.  As ever, there has been days of rumour and speculation about the measures that will be announced.  Here's our predictions:

1. Growth and the public finances
   Higher than expected tax receipts from the bonus tax and lower than forecast unemployment should mean the deficit comes in at least £10 billion lower that forecast at the time of the Pre-Budget report.  This may be better news but the Chancellor shouldn't be relying on this trend to continue over the next year.  He is also likely to leave his forecast of 1.3% growth in 2010 unchanged, but predictions of 3.5% growth in 2011 look optimistic compared with the consensus and could be revised down.
    
2. Efficiency savings rather than spending cuts
   In an attempt to signal that the government can take the necessary steps to tackle the deficit, but without going so far as to indicate which spending departments will bear the brunt of fiscal consolidation, more efficiency gains with current budgets are likely to be identified.  The question is whether these savings will translate into a reduction in Departmental Expenditure Limits.
   
   
3. Tackling unemployment
   Rising long term unemployment and growing numbers of young people not in employment, education or training (NEET) are likely to be a priority if any additional revenues are to be recycled into extra spending.  This could take the form of extending the current subsidy to employers taking on apprentices.
   
   
4. Improving access to finance for growing companies
   The Enterprise Finance Guarantee Scheme will continue to run until the end of the year, put the Chancellor could put more pressure on Banks to ensure they meet growing demand for new finance as the recovery gains pace.  We are also likely to get more detail on progress with the Growth Capital Fund and how the National Investment Corporation will bring coherence to the disparate finance initiatives for small companies.
   
   
5. Decarbonising energy supply
   An energy market assessment will be published alongside the Budget.  It will look at whether current mechanisms will deliver a secure energy supply in future.  If the report picks up the baton from OFGEM - acknowledging the need for reform and a clear plan of action, that would be a big step forward.

We'll be blogging on the statement later and providing a full briefing on what it means for manufacturers.

 

UK manufacturers will have read with some concerns the suggestion from the Prime Minister that your forthcoming Budget might reallocate savings from lower than expected social security payments and debt interest to additional public spending. 

This would surely see a return to form by HM Treasury in assuming the best possible outcome for the labour market and the public finances and spending accordingly.  Indeed, many companies may also wish to highlight that the lower levels of unemployment seen during this recession, compared with others, was in large part a consequence of companies and employees working together to minimise job cuts and retain skills. 

If this Budget does extend the Treasury's generosity to increase spending companies will rightly feel perplexed that their efforts to keep jobs have been rewarded with higher taxes to fund new spending commitments rather than to reduce the deficit.

Reducing the deficit, after all, must be the focal point of your statement. 

Manufacturers will be hoping for your statement to put an end to the current debate on the timing and pace of fiscal consolidation. 

This is missing the point. 

Some companies will start to feel the effects of fiscal tightening in the next financial year.  And the stimulus measures - which did help to limit the economic damage of the recession - have all but run out. 

You have an opportunity to outline HOW companies will be impacted by decisions on tax rises and spending cuts in the coming years and how these will relate to the government's priorities for the economy. 

Not to do so would be a huge missed opportunity.  The Budget needs to spell this out.  Otherwise the sectors of the economy that hold the best hope for recovery will face further uncertainty and decisions about investing in the UK will remain on hold.

You can read our full submission to the Treasury in advance of the Budget on 24th March here. 

And the conclusion from nearly 100 delegates in the North West today was ‘Yes, manufacturing should be at the heart of a future balanced economy.’

One of a number of events going around the country for Manufacturing Week, EEF and the North West Development Agency hosted a debate at Jaguar Land Rover’s impressive facilities at Halewood. 

The panel brought together a range of views from manufacturing, business support, finance and EEF to discuss issues from how we take advantage of low carbon opportunities and concerns about the public finances to how we improve the image of manufacturing and get businesses and universities working more closely.

The audience was firmly on the side of manufacturing – it is important to our economy and it can be bigger and more important in future. 

And while 90% of delegates agreed that government needed to get stuck in if this was going to happen, the majority also recognised that manufacturers can and should shout louder about their contribution to the economy and their communities.

Panellists and audience members agreed that raising the profile of industry during Manufacturing Week was a critical part of this, but that it was everyone’s responsibility to carry this forward beyond the 5th March.