Intelligence Briefing - 10 December 2010

Energy Minster briefs EEF on new energy proposals

In the same week that the government published a new Energy Bill, we have hosted a member dinner with Charles Hendry MP, the Energy Minister. After a short overview of the Bill from the Minister, companies raised a variety of issues, including concerns that the government’s initial proposals on energy security do not go far enough (for more information see press coverage on this issue below). There was also debate about the cost of climate-change policy to business and what more the government can do to help manufacturers make the most of demand for energy-efficient products. At the end the Minister agreed to maintain dialogue over these issues and EEF will continue to seek to influence the Energy Bill.

For further information contact, Stephen Radley, Director of External Affairs and Policy

EEF helps to drive government’s Growth Review of Advanced Manufacturing

EEF’s economics team met with the senior government officials leading the governments Growth Review into Advanced Manufacturing. The Review is developing short-term measures to drive growth through 2011, but also wants to set out an ‘action plan’ to support long-term growth in the sector. EEF discussed key areas of concern for members trying to achieve growth, including shorter-term measures such as recent tax changes, as well as long-term, stable funding for adult apprenticeships. We also urged the Review to encourage cross-Whitehall coordination on the raft of environmental funding, taxation and regulations that are due to be implemented in the next 12 months.

For further information contact Jeegar Kakkad, Senior Economist.

Members share forthright views on climate change policy

Senior officials from both the domestic and international parts of the DECC, the climate change department, were guests at the EEF Climate & Environment Policy Committee this week. Members were forthright in telling DECC that UK climate change policy is a shambles and that government must now take firm action to provide the right market signal to investors to ensure future energy security, without cost increases on manufacturers that would only further damage the competitiveness of EEF members. Officials heard that government must now act strategically and reform climate change policy in the round, rather than taking a piecemeal approach that would inhibit future manufacturing growth and not lead to deep cuts in carbon emissions.

For further information, contact Gareth Stace, Head of Climate and Environment Policy

Successful rearguard action leads to commonsense delay on EMF

As reported in the 26th November briefing, we have been busy opposing the European Commission's attempts to push through an incomplete health and safety directive on electromagnetic fields. We worked closely with the Health and Safety Executive, building support amongst other governments and business organisations and calming fears that delay could result a currently postponed and very unsuitable directive coming into force. The Commission has now agreed to produce a complete draft directive and hold a further meeting of the working party to consider its implications and reach conclusions. We also had very constructive discussions with Liz Lynne MEP who is taking a leading role on this issue. We are working together to ensure the minimum impact on manufacturing companies.

Tax Policy Committee presses government advisor on a simpler tax system

In what was a busy week of member participation, EEF’s Tax Policy Committee met with John Whiting, Director of the government’s newly established Office of Tax Simplification. Members on the Committee urged the government to focus on genuine structural simplification, rather than settling for marginal simplifications that provide little sustained benefit to business. EEF’s Committee focused on three areas of simplification, including capital allowances, the R&D tax credit and National Insurance Contributions. Members argued that, in each of these areas the tax system simply does not reflect modern business practices. Members felt that this mismatch generated unnecessary complexity and consequently hampered their competitiveness.

For further information contact Steve Pointer, Head of Health and Safety Policy

Weekly focus

Positive manufacturing news has continued this week. Official figures showed that the fourth quarter got off to a good start with manufacturing output up nearly 6% compared with a year ago. Our latest Business Trends survey suggests that this looks set to continue in the final months of the year with a balance of +33% of companies reporting increased output levels in the past three months.

Also in line with the official statistics and our previous report is the broad-based nature of the recovery with all sectors recording positive output and orders balances for the third consecutive quarter. In most industry sectors the balance of responses on export orders was higher than domestic orders intake and this trend is expected to continue into the first quarter on 2011. We have continued to see stronger than expected growth in parts of Europe, particularly Germany, and emerging economies such as China and India are becoming increasingly important markets for UK exporters.

With demand holding steady, more companies are reporting that this has translated into plans to recruit and invest in new equipment. However, with a range of uncertainties around demand prospects in 2011 -from trade tensions and currency wars, to hikes in commodity prices and persistent credit constraints - there is still some caution about making significant investments in new machinery or taking on permanent employees for the time being.

The most significant change we’ve seen in this quarter’s survey is with respect to price increases. The response balances of companies planning to raise prices in export markets and the domestic market have risen to their highest levels in more than two years. In previous surveys price increases have been limited to a small number of sectors, however in the next three months a broader range of sectors is expecting to raise prices. This appears to be driven by greater pass through of rising raw materials costs.

Looking ahead to 2011, a balance of companies expects to see output and orders maintain their upward trend. Responses are a touch weaker compared with the past three months, but remain above the average for the series. However, our survey shows a more notable weakening in the outlook for domestic orders, where the balance has slipped from +15% to +7%. This is likely to reflect some concerns about what the outcome of the recent Spending Review might mean in practice and potential loss of orders through the supply chain. We are, nevertheless, forecasting growth in manufacturing output of 3.2% in 2011, following an expansion of 3.8% in 2010 – in both years faster than the forecast pace for the wider economy.

In the news

As outlined above, our fourth quarter Manufacturing Outlook survey was published this week and was featured across the national and regional press, including The Guardian, Independent and Daily Telegraph. Broadcast interviews were given to BBC News, Sky News and Radio 5 Drivetime on the back of the survey. Meanwhile our comments on recent trade figures were used in a feature article on the state of manufacturing in the Daily Mail. The Financial Times (registration required) and Daily Telegraph picked up our reaction to the BIS Select Committee report on LEPs (you can read the report and see our evidence here), whilst the FT also covered our reaction to the Energy Security Bill in its main pages and on its energy blog.

Week in Review

	Index of Production	Manufacturing output grew by 0.6% in October, and was up 5.8% from October 2009. Growth was broad-based, with 10 of 13 manufacturing sectors showing growth. However, output still remains 9.4% down from pre-recession levels.
	UK Trade	The trade deficit in goods widened to £8.5bn in October from £8.4bn in September. The total value of goods imports rose faster than goods exported in October, with import values growing by £1.1bn, and exports values rising by £0.9bn.
	MPC Announcement	The MPC voted to maintain the Bank Rate at 0.5% and the stock of asset purchases at £200 billion.
	Producer price index	Output prices for UK sales of manufactured products rose 3.9% in the year to November, though this was lower than the rise of 4.0% in year to October.

The week ahead

Tue 14th: Consumer Price Index

Wed 15th: Labour Market Statistics

Thu 16th: Retail Sales

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