Manufacturing recovery rolls on

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EEF's fourth quarter Manufacturing Outlook report, in partnership with BDO, provides a few more reasons for some economic cheer.

- Output and orders balances positive, but down on last quarter- The domestic market is providing more support for output growth- Manufacturers of all sizes added jobs over the quarter- Investment balances head even higher

A chart and the detail...

% balance of change

Output and orders

In the past three months a balance of 19% of companies saw increased output levels, while strong by historic standards, these results have come off the boil compared to the previous quarter and are lower than predicted. There is a similar picture on total orders, as manufacturers report a positive pipeline, but perhaps not as strong as expected.

The dip in orders appears to be driven, in part, by fewer companies see growth in orders from overseas customers – especially those outside Europe. Nevertheless, there is continued strength in domestic demand with responses balances again stronger for UK orders than export ones. This is also a pattern that manufacturers are predicting to persist in the coming quarter.

Employment

The balance of companies adding employees was still firmly positive over the past quarter and is expected to be so again in the next three months.

This quarter's results show that larger companies are once again recruiting; a balance of 19% of the largest companies indicated employment had risen in the fourth quarter of 2013 after a balance of 3% had indicated they reduced employment last quarter. With the exception of basic metals, all sectors increased employment with the strongest balances reported in motor vehicles and rubber and plastics.

Investment

There is also a strong positive balance of companies planning to invest. At +27% the balance surpassed last quarter's six-year high. In addition, plans to increase capital expenditure were widespread across all firm sizes.

This is a promising sign for official business investment statistics as large companies are responsible for the majority of UK business investment. In addition it also signals that companies across the supply chain are putting in place the plans necessary to allow them to meet the uptick in orders . Companies in all sectors indicated they had, on balance, increased investment intentions for the year ahead.

Manufacturing output forecast to grow 2.7% in 2014

The better performance across manufacturing in the year to date and the strong positive responses in our survey have lifted our growth projections for 2014. We expect manufacturing output to expand by 2.7% next year, up from 2.1% previously. While we do expect most manufacturing sectors to return to growth, there will inevitably be a mixed picture from our forecasts. We again expect other transport to lead the pack with a somewhat weaker outlook for food and drink, and rubber and plastics. For GDP, we have upgraded our forecasts to 1.4% this year and 2.4% in 2014.

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Chief Economist

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