Manufacturers see a stronger start to 2012

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This morning the ONS will release the Index of Production for January, which will provide the first official statistics for manufacturing growth in 2012.

EEF's own Business Trends survey – also released this morning – suggests that companies have had a positive start to the year.

After weakening at the end of 2011, this quarter's survey showed the balances of businesses reporting increased orders and output strengthen in the last three months.

The crisis in the Eurozone hit confidence in the final months of 2011, and official statistics showed that manufacturing output contracted towards the end of the year. However, a closer look at these statistics suggests that this weakening may have been relatively short-lived. Although manufacturing output fell in October and November the sector grew again in December. The manufacturing PMI followed a similar pattern, returning to positive territory in January. Our survey this quarter also suggests the dip in activity was a temporary one. Confidence about the next three months has recovered to levels reported in early to mid-2011.

The positive outlook has fed through to strengthening investment intentions, although the outlook for cashflow continues to weaken, suggesting companies may struggle to translate positive intentions into real investment. We still need to hear more from government to ensure that investment proceeds and generates much-needed growth.

We do expect manufacturing to grow in 2012, though the weak end to 2011 and the continuing volatility in the global economy have caused is to revise our forecasts down to growth of 0.5%. We anticipate that the sector will regain some momentum in the latter part of the year, translating into stronger growth of 1.8% in 2013.

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