Furthermore, EEF also released figures showing that the recent credit crunch has had a relatively limited impact so far on manufacturers, with only a small
percentage of companies seeing a significant increase in the cost of finance. There are also few signs so far that the turbulence in financial markets is affecting investment intentions, which remain above their long-term average.
Commenting, EEF Chief Economist, Steve Radley said:
“Despite rising oil prices, a falling dollar and a more uncertain economic outlook, manufacturers recorded another quarter of healthy growth and are looking to the future with a degree of confidence. Investment intentions also remain strong, reflecting their continuing commitment to drive up productivity. Though the economic outlook remains unclear, manufacturers’ greater resilience should mean that growth continues into 2008.”
· Output and order balances remain firm
· Export orders pick up despite weak dollar
· Rising costs and falling dollar squeeze export margins
· Investment intentions above long term average
· Confidence remains strong, though optimism down on the previous quarter
· Credit crunch having little impact on cost of finance
· Growth forecast to continue through to 2009
Order and output balances were both in positive territory for the ninth consecutive quarter, with the balance on orders in particular (+21) the second highest since 2004 Q3.
In contrast to the last quarter, export orders to both EU and non EU countries picked up whilst domestic orders edged down slightly. However, the balance of firms reporting falling margins on export sales indicate the weaker dollar is beginning to take its toll. The decline was most marked in those sectors that are particularly exposed to movements in the dollar such as electronics and aerospace.
All sectors reported positive output balances over the past three months with motor vehicles and electrical equipment reporting the strongest balances for the second quarter running. With the exception of basic metals balances on order volumes were a touch weaker, although for most sectors they remained in double digits. Once again all regions reported positive balances on output.
Though weaker than the unusually high figure recorded in the previous quarter, investment intentions remained firm and above their long-term average. The continued commitment to raising investment reflects improved company balance sheets, confidence about future prospects and the need to keep raising productivity if manufacturing is to remain competitive.
Last quarter the forward-looking responses on output and orders were the strongest on record. Looking ahead, firms remain upbeat about the sector’s prospects, despite a number of uncertainties surrounding the UK and global economic outlook. Overall, 41% of firms expect output to increase in the first three months of next year, compared with 22% projecting a fall.
Separately, the survey also asked about the impact of the current turbulence in financial markets on company finance, only 2.4% of the 577 companies who responded to this particular issue said that they had seen a significant increase in the cost of finance from Banks or other financial providers. Almost 40% of companies said there had been no change.
EEF’s forecasts for engineering and manufacturing have been revised down since last quarter. This reflects the weaker than expected official data for the third quarter rather than a change of view on the sector’s prospects. Engineering is now forecast to expand by 1.3% in 2007 and 1% in 2008. Manufacturing is forecast to expand by 0.8% this year and next.
Bob Hale, Head of Manufacturing at Grant Thornton, commented:
"We have witnessed a trend of de-gearing and increasingly effective asset management within the manufacturing sector in recent years, as UK manufacturers improve their balance sheets and increase international competitiveness through global supply chain development. With exporters also finding increasingly diverse markets for their products, there are plenty of indicators still pointing the right way despite the credit squeeze, weak US dollar and high interest rates."