Manufacturing sees a strong start to 2011

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Today sees the release of EEF's Business Trends survey results for the first quarter of 2011. Manufacturing output has posted one of the strongest four-quarter periods on record.
In the first quarter manufacturers once again reported better than expected activity
Although output and orders balances were a little down on the previous quarter they remained strong, and better than had been expected in the previous quarter's survey. Output balances have in fact been over 20 for an entire year, which is this one of the strongest four-quarter periods in the survey's history.
Exports are driving the strong order intake, but domestic demand has not been as weak as was expected
Export orders are becoming increasingly important for manufacturing demand, highlighted by the widening gap between export and domestic orders on our survey. However, in the last quarter's survey firms were quite pessimistic about how domestic orders would look at the start of 2011, and the outturn has proved to be better than was expected.
Prices are going up and more cost increases are being passed on. This trend looks set to continue
In last quarter's survey there was a jump in the number of manufacturers expecting to put up their prices. This quarter companies put up their prices. In fact the outturn over the past three months was even higher than expected, with both export and UK price balances posting the highest readings on record. Price rises are expected to continue into the next quarter, and a positive balance of companies expects this to translate into improved margins.
More companies are investing and recruiting
The number of companies taking on new workers increased in this quarter, with the survey balance at 29%, a record high. While anecdotal evidence suggests that companies are not recruiting large numbers (with a few exceptions) and some are coming up against skills shortages the balance of companies does expect to take on more workers in next three months.
Investment balances are strongly positive across all sectors. However, the balances are considerable stronger for larger companies than those with fewer than 100 employees. In addition, the survey provides no indication of where manufacturers are planning to invest, and anecdotal evidence suggests that companies are increasingly looking to expand their investment overseas.
Expectations for the next quarter are better still, with record export orders balances
Looking ahead, balances remain positive, with the export orders balance at a survey high. The outlook for domestic orders is also. On this basis, we expect manufacturing to grow by 3.5% in 2011 outpacing the wider economy for the second year running.

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