Sector Friday: Forecasts

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So far this month it has been good news after good news for manufacturing. EEF's Business Trends Survey and the PMI have been firmly in positive territory. Today's official figures add to the good news tally and provide another sign that a manufacturing recovery is getting underway once again.

Manufacturing output posted month on month growth of 0.2% and was up 0.9% on a three months on the three months basis. Under the broad manufacturing headline differences between individual sectors persist.

The main movers in the sector over the past three months were chemicals, transport equipment and electrical equipment

% change in output 3m-3m, JulySource: National Statistics

Manufacturing forecast to grow through rest of this year, but we'll continue to see some sector leaders and laggards

Top 5 movers - % change in output 2014Source: EEF

We are forecasting manufacturing sector output to expand 2.1% in 2014, slightly ahead of growth in the wider economy. This return to growth is expected to be relatively broad-based, with output in 11 out of 13 manufacturing sectors forecast to grow next year.

A bit more on our top 5:

  • Other transport remains one of the strongest manufacturing sectors, and growth is likely to continue on the back of strong order books. We are forecasting output growth of 8.8% this year and 6.1% in 2014. Modest employment growth in 2013 is forecast to be followed by stronger growth in 2014.
  • The electrical equipment sector has had a bumpy 2013 so far and is likely to see a modest contraction this year, following a weak end to 2012. However, prospects for the sector globally remain positive and with new products coming to market growth should bounce back in 2014.
  • Mechanical equipment saw a significant fall in output in the first half of 2013, which has led us to expect a contraction this year. This is forecast to turnaround next year as the sector is well-placed to benefit from the increase in investment intentions in the UK and the improvement in worldwide manufacturing indicators.
  • Motor vehicles is seeing strong export demand for both cars and commercial vehicles, particularly from emerging markets, and strong domestic demand for new cars. Employment prospects are positive, linked to both continued output growth of 2.9% in 2014 and new product launches expected over the next couple of years.
  • Electronics will see output fall in 2013. The sector has contracted every year since 2000, but we have seen signs of the rate of contraction slowing and growth in some areas, such as components. We forecast growth for UK electronics in 2014, which tends to do well when the global sector is nearing capacity.

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Chief Economist

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