Key findings:
· Firms report good trading conditions
· Export markets support order books
· Growth remains widespread across UK regions
· Investment remains firms despite margins squeeze
· Jobs outlook continues to improve
· Firms confident about next three months
· Engineering and manufacturing forecast to grow by just under 2% and 0.9% respectively
The survey highlights the increasing divergence between export and domestic order books which have now been on different tracks for the best part of four years. Whilst a balance of 14% of companies saw export orders increase in the last three months, the domestic order balance fell to zero, the lowest for a year.
In addition, with both orders and output above the average levels seen in the last five years confidence amongst companies remains high, despite the continuing downward pressure on margins. This is being translated into improved intentions with the positive balance in the latest quarter the highest recorded since the end of 1997.
Commenting on the results, EEF Chief Economist, Steve Radley, said:
“Our survey provides welcome evidence that UK manufacturers are exploiting the strength in world markets. We have now seen four quarters of strong growth in exports – the best sustained improvement since 1995.
“With domestic order books flat, manufacturers are increasingly dependent on overseas markets. Whilst on the one hand this leaves us vulnerable to a downturn in the world economy, on the other the pressure of competing across the globe will help to keep a lid on inflation.”
Growth remains balanced across all regions except Northern Ireland, with the strongest conditions in the North East and West Midlands. This trend was also reflected in sectoral growth for the second consecutive quarter with electrical equipment, electronics and mechanical equipment the strongest. The weakest performer continued to be motor vehicles, the only sector to forecast a decline in output over the next quarter.
Employment balances remained positive for the second consecutive quarter with half the UK regions seeing some recruitment activity. The best prospects were recorded in the South West and Scotland, whilst the poor output performance in Northern Ireland may explain why firms there are reducing headcount.
The survey also contained positive news for the Bank of England on prices with firms’ expectations of price rises easing. This might allay fears of the need for a further increase in interest rates.
Looking ahead, despite downward pressure on margins firms remain optimistic. Balances for both forward-looking output and orders have remained in double digits since the start of the year and firms are more optimistic for the next three months. However, as with the picture of actual output and orders firms believe that the growth potential is overseas with confidence for domestic orders remaining weak.
Commenting on the implications of the results and wider economic data for interest rates Steve Radley said:
"There is no doubt we are seeing reasonably strong figures across the board but it remains to be seen how far this will be translated into serious inflationary pressures. Having fired a shot across the bows last month, the Bank should wait for clearer evidence of the need for a further rise."
Corporate finance partner Martyn Pilley, a member of RSM Robson Rhodes’ National Manufacturing and Technology Group, commented:
“The renewed confidence shown by manufacturers in the last quarter has continued and it is a welcome sign that firms are signalling their intention to invest. Energy costs and metal prices are still impacting on margins, but there are signs that these pressures are beginning to ease a little. “
ENDS
The survey was conducted between 4th and 23rd August, with 1,042 companies responding. The results presented cover the full range of engineering sectors – metals, metal products, mechanical engineering, electronics, electrical engineering, motor vehicles and other transport equipment.
The EEF/RSM Robson Rhodes Engineering Outlook Report is sponsored by RSM Robson Rhodes, an international firm of chartered accountants and consultants. Its Engineering Industry Group offers a wide range of financial and advisory services to both private and listed engineering companies. This team provides advice on mergers and acquisitions, raising finance, tax efficient investments/deal structuring, manufacturing/business strategy, recruitment/remuneration and accounting issues.