2013 Risks and Opportunities for UK manufacturers

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So far our blogs on EEF's 2013 Executive Survey have highlighted that

  • Manufacturers are a bit more positive about the UK's economic prospects compared with a year ago.
  • Views on industry sub-sector performance are more divided - transport expecting growth; metals looking at contraction.
  • Some firm level confidence that increased productivity and sales can be achieved this year.
  • It should be game on for exporters, but only in non-EU markets.

This final blog picks up on some of the more upbeat firm level indicators. A number of opportunities are driving these positive expectations.

The most cited growth opportunity this year is from sales of new products as manufacturers see the benefits of their focus on innovation efforts. The proportion of companies expecting to grow on the back of this has leapt to almost 50% from just 10% a year ago. New service offerings also feature as a route to increasing sales this year with 27% expecting to services to generate growth in 2013.

As noted in our market outlook yesterday manufacturers are more optimistic about demand prospects in emerging markets and 45% expect these regions to offer growth opportunities for their businesses in the next twelve months - on a par with last year.

Also in the top three areas of potential growth is the opportunity to diversify into new supply chains. Second- and third-tier suppliers continue to see the benefits of companies further up the supply chain try to build security into their supply base by dual-sourcing or finding local suppliers instead of relying solely on overseas ones.

Inevitably, in the current climate it's not all good news. There are still choppy waters to be navigated in 2013 and the main risk identified by manufacturers in the year ahead is the potential for the world economy to weaken this year, hitting demand for UK exports. This is a marked shift compared with a year ago when concerns were focused on supply constraints, particularly the cost and availability of raw materials.

Recently there have been both sharp monthly movements in the value of Sterling. Risks around exchange rate volatility were cited as a concern by fewer than one in ten manufacturers in 2012, this has risen to 37% in our latest survey. Medium and large companies, most likely to be involved in multiple export markets, were more likely to see exchange rate volatility as business risk this year.

Small companies, however, continued to be concerned about their ability to access the external finance needed to invest and grow over the course of this year. Government schemes to support the flow of finance are hoped to deliver further improvements for SMEs over the course of this year. Our latest survey, and indeed evidence from others, continues to show that risks around credit availability are set to cast a shadow over growth prospects for the next twelve months.

No year is risk free for manufacturers, which are exposed to fluctuations in exchange rates and commodity prices; competition from around the world; a push to constantly innovate for new products and services; and ever-present demand uncertainty. The latter risk appears to be the most heightened in the year ahead and the fortunes of the sector and the UK's ability to rebalance its economy will continue to be closely linked to global events. As our survey points to continued action by manufacturers to develop new opportunities to grow their businesses, there is room for some cautious optimism that the sector can remain on track for recovery.

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This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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