Manufacturers: UK recovery well underway

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Indicators approach record highs as exports pick up

Key findings

  • Output and orders firm and in line with expectations for Q1
  • Export balances rebound significantly
  • Output and order balances approaching or at record highs for next three months
  • Indicators on employment and investment intentions reach record highs
  • Manufacturing growth forecast remains at 2.7%, GDP growth upped to 2.6%

Britain’s manufacturers are enjoying increasingly strong growth thanks to a combination of strong UK sales and a boost in overseas trade, according to the latest quarterly survey (published March 17) by EEF, the manufacturers’ organisation and business advisers and accountancy firm BDO.

The EEF/BDO Q1 Manufacturing Outlook survey reveals a more consistent picture than in recent quarters with the strong conditions spreading to all regions and sectors, and healthy balances for both UK and overseas sales.

And the positive outlook is being translated into record high recruitment and investment intentions - the highest levels recorded in the survey.

In its report EEF says that translating firms’ intentions to invest and hire more staff into action will be the ultimate test for long term economic recovery. The Chancellor must therefore gear his Budget this week to secure the best possible business conditions to support these investment and growth ambitions.

EEF Chief Economist, Ms Lee Hopley said:

“This is the most positive set of indicators we have seen for some time, demonstrating that we’ve not just turned the corner, we’re actively heading down the right road. Manufacturers are clearly feeling more confident as their order books fill up and exports are strong. It is now vital that Government does all that it can to underpin support for companies, giving manufacturers the confidence to fulfil their investment and recruitment plans.”

Tom Lawton, Head of Manufacturing at BDO added:

“The broad nature of the recovery that this survey points to is a source for particular encouragement as it has been some time since all sectors have been moving in the right direction. The fact that this is underpinned by a significant strengthening of exports, especially to Europe, adds further stability to the foundations of growth.

“This should also give confidence to the Government that its support for the sector is starting to achieve the desired results and if implemented in a clear and carefully targeted fashion will continue to reap benefits.”

According to the survey output and order balances edged higher compared to the final quarter of last year to +22% and +20% respectively. Looking at sector performance the strongest positive balances were reported by companies in the electronics, motor vehicles and electrical equipment sectors.

Looking forward, this positive trend is forecast to continue in the next quarter with output balances of +29% matching the previous record high in 2004 Q1, while total orders expectations saw a more marked increase to +37%, the highest in the survey’s history.

Whilst the domestic market continues to be a source of strength with a balance of +16%, up slightly from the last quarter, more evidence of a broadening recovery was signalled by a similar balance for exports orders, up substantially from the previous quarter. Given the appreciation of sterling this is especially encouraging and is down in some part to a gradual recovery in the Eurozone given slightly softer conditions elsewhere.

Both recruitment and investment intentions have surged on the back of this positive picture. A balance of +31% of companies plan to increase employment in the next three months which was well above expectations last quarter, especially for larger companies. The broad based nature of growth was illustrated by the fact all sectors increased employment, with the strongest balances in the motor vehicles and electronics sectors.

Investment intentions also strengthened for a fourth consecutive quarter to +34%, the highest level in the history of the survey. This is especially important to ensure more balanced growth, especially as the positive intentions are flowing from the majority of sectors and firms of all sizes.

EEF’s forecast for manufacturing growth in 2014 remains unchanged at 2.7%. However, EEF has increased its forecast for GDP growth to 2.6%.

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