A growing number of Britain’s manufacturers reported buoyant trading conditions over the past three months on the back of rising demand in overseas and UK markets, according to a major survey published by EEF, the manufacturers’ organisation and BDO LLP.
The second quarter EEF/BDO ‘Manufacturing Outlook’ report reveals that the broad based recovery, which began at the end of 2009, has gathered pace. Output and orders balances hit their highest levels since the survey began in 1995, indicating that manufacturing’s contribution to the recovery looks set to continue over the coming months.
Greater confidence across the sector is starting to translate into recruitment. However, investment balances continue to lag as uncertainty about the strength of future demand, availability of internal finance and concerns around business change taxes combine to keep plans on hold. But a package of tax reforms in the emergency budget that continues to support growth will go some way to alleviating concerns.
Commenting, EEF Chief Economist, Ms Lee Hopley, said:
“The steadily improving trends in manufacturing look set to continue in the coming months and the upswing is being felt right across industry. Manufacturers are pulling in more export orders on the back of a recovering world economy and a better outlook for the domestic market is giving companies some confidence to recruit again.
”But manufactures are very aware that economic headwinds could still pick up again as there are still risks to a sustained recovery. Great importance is now being placed on the need to rebalance the UK economy. In the short term this requires a Budget which delivers tax reform and deficit reduction in a way which provides some stability and gives manufacturers the confidence to invest.”
Tom Lawton, Head of Manufacturing at BDO, added:
"These are a good set of results, especially as the manufacturing sector is still getting to grips with the uncertainty of the new coalition government. Manufacturers are now indicating that they want the government to deliver in five key areas: deal with the deficit, establish an environment that allows manufacturing to be competitive, provide specific support to mid-market manufacturers and create and support investment in emerging technologies but without forgetting the needs of the traditional manufacturer.
"But, British manufacturers have never waited for, or relied on, politicians and regulators to initiate change. The emerging economies provide a huge opportunity for UK manufacturing. Those businesses who understand their core capabilities and who work hard to nurture them whilst adapting to the rapidly evolving international marketplace could see growth on an unprecedented scale."
Over the last three months both output and new order balances were at record levels of +30% and +34% respectively (up from 8% and 2% in Q1.)
The improvement in the orders balances have been driven by improvements in both UK and export markets. The balance on export orders of +23% is the highest on record. The balance on UK orders also rose to +24%, also a record with the improving picture reflected across all sectors and regions.
Responses on employment over the past three months also turned positive in the second quarter and a balance of 15% of companies expect to recruit in Q3.
However, investment intentions remained flat over the past quarter, after seven consecutive quarters of negative balances. Our survey found that investment plans were being held back by a range of factors; in particular, 65% of companies cited uncertainty over domestic demand, 46% uncertainty over future tax changes, whilst over half cited lack of finance or decision by parent company.
Looking forward companies expect the positive outlook to continue with respective balances of +22% of firms expecting increased output and +20% expecting increased orders.
Our forecasts predict 3.5% growth in manufacturing both this year and next as output recovers from the depths of the recession. Engineering output, which fell by 15% in 2009, is expected to grow by 6.4% in 2010. Manufacturing saw similar surges in activity following the 1980s and 1990s recessions.