Intelligence Briefing 4 November 2011

Published: 04/11/2011

News

Join us for EEF’s first ever National Manufacturing Conference

EEF will be holding its inaugural National Manufacturing Conference in London on the 6th March 2012 in partnership with The Manufacturer magazine. Confirmed key note speakers include The Rt Hon Vince Cable MP, Secretary of State for Business, Skills and Innovation and The Rt Hon Ed Miliband MP, Leader of Her Majesty’s Opposition, with more to follow.

Manufacturers will also have the opportunity to network and share practice through a range of best practice workshops covering topics such as managing global supply chains, accessing finance and exporting for growth. The event is open to members and non-members to attend and you can find more details here.

Treasury Minister briefed ahead of Autumn Statement

Ahead of the Autumn Statement, EEF met Lord Sassoon, Commercial Secretary to the Treasury. As well as briefing the Minister on the state of manufacturing and continuing issues with access to finance, we emphasised the need for measures to be included in the Autumn Statement that would have an immediate impact on investment and growth such as a temporary increase in capital allowances and making R&D tax credits payable above the line. We also stressed the importance of the government focussing on the issues that are really holding back growth such as tax, access to finance, regulation and skills rather than pursuing a large number of small initiatives that would have limited impact on growth.

For further information, contact Lee Hopley, Chief Economist

Keeping pressure up on pensions reform

This week we also met with Steve Webb MP, the Pensions Ministers. The main focus of this meeting was the government’s planned reform of the State Pension and the implications this has for the end of contracting out relief for employers that still have final salary schemes. We stressed the importance of giving employers sufficient time to make the transition, giving them certainty of how government will take these changes forward and introducing measures to offset the impact on employers with active final salary schemes. We also discussed the importance of helping employers to prepare for the introduction of auto-enrolment in pensions and ensuring that the proposed EU Pensions White Paper does not impose administrative and financial burdens on pensions schemes run by UK business.

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

Minister calls for cultural shift in government industrial policy

Climate Change Minister Greg Barker MP this week called for a long term industrial strategy fit for the 21st century. Speaking at the All Party Parliamentary Group for Energy Intensive Industries, the Minister provided a tantalising glimpse of the government’s proposed energy intensive package, expected to be announced alongside the Autumn Statement.

Mr Barker began by stating that the government cannot have a singular focus on carbon targets alone and that the government recognises the importance of a strong manufacturing sector and the need for an effective transition to a low carbon economy. The government recognise that it’s not hard to meet UK carbon targets by offshoring our industries, the real challenge is to meet the targets while supporting growth in the sector. EEF has worked hard to ensure Ministers have a much better understanding of the impact of the UK’s unilateral climate policies on the competitiveness of UK manufactures. As a result government appears to be committed to working with industry to overcome these barriers. However the minister gave the caveat that the approach will be cumulative, phased and any direct support would have to be delivered as and when the government can afford it.

For further information, contact Fergus McReynolds, Senior Climate and Environmental Policy Advisor

Environment Agency keen to hear how it can improve its service

EEF regularly meets with a range of regulators and was this week part of the Environment Agency Regulated Business Forum. This forum meets to discuss issues for industry regarding regulation. At this meeting, updates were given on the Industrial Emissions Directive, which recast several existing regulations relating to industrial emissions into one piece of legislation, ways of reducing data burdens through a variety of routes, such as reviewing permits, integrating the way you submit data and improving how the Agency use data. Of most interest is the beginning of a review of Opra, which is an Environment Agency tool for assessing the environmental risks of sites, and therefore the appropriate charge to be attached to this. Views are sought about how industry views the assessment tool and what aspects should be changed.

For more information, please contact Charlotte Danvers, Senior Climate and Environment Policy Advisor

Weekly focus

Making sense of recent economic data

On Tuesday, ONS released the first estimate of economic growth in 2011q3 and it showed a modest upside surprise with a 0.5% overall expansion. The GDP result was ahead of most analysts’ expectations of a 0.3% rise, mainly on the back of stronger growth from business and financial services. Manufacturing grew too but at a slower pace than the overall economy for the first time in the recovery with growth of 0.2%.

More concerning in the short term was the simultaneous release by Markit of their monthly Purchasing Managers’ Index (PMI) for Manufacturing for October. This showed a 28-month-low with a reading of 47.4 – a sub 50 reading is usually associated with contraction. This doesn’t bode well for the start of the fourth quarter of the year. Of particular note within the overall PMI data is the dive in the new orders reading, which fell to 44.

So what’s driving this? Weakness on the domestic side of the economy continues with subdued consumption growth and the beginning in earnest of reductions in government spending. The major change since the start of the year, when manufacturing was growing strongly, is the weakening in external demand. The eurozone crisis now seems to have spilled over from causing firms to hold back investment and recruitment plans to actually reducing customers’ orders. Worryingly, because the eurozone crisis has the potential to again weaken the global financial system, the fall back in orders seems to be impacting markets both within and outside Europe.

Notwithstanding these data, EEF still expects growth in manufacturing to continue in 2012. For example, though coming from a low base, quarterly goods exports to China have increased 16% in the 3 months to August 2011 compared with the 3 months to August 2010. Emerging markets are growing. In the medium term manufacturing is still at the heart of an economy characterised by a greater reliance on trade and investment as sources of growth. Our own Manufacturing Outlook survey is currently with members and when this is published in early December it will give us a much greater understanding of how manufacturers are faring.

In the news

Our response to the GDP and PMI data was published in the Telegraph, Guardian and BBC website. Separately our Chief Executive, Terry Scuoler had a letter in the FT on the topic of capital allowances whilst our views on Red Tape were referred to in the Daily Telegraph in connection with an interview on the British Standards Institute. Terry also took part in live interviews on BBC 5 Live and BBC News Channel.

Week in review

GDP (Q3 preliminary estimate)	UK GDP grew by a better than expected 0.5% in the third quarter of 2011. Manufacturing output grew 0.2% in 2011q3 and services output grew by 0.7%, but output in the construction sector contracted by 0.5%.
Manufacturing PMI	October’s manufacturing PMI fell back below 50 meaning that it is at a level associated with contraction. Demand showed continued signs of weakness as the Eurozone crisis hit customers’ confidence, something that is likely to remain an issue for manufacturing in the next few months.

The week ahead

Tue 8th: Index of production
Wed 9th: Trade
Thu 10th: MPC interest rate decision
Fri 11th: Producer price index

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