The outlook for growth - Manufacturers' expectations

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This blog follows on from yesterday's and delves into expectations for the year ahead in more detail. As pointed out yesterday, the overriding sentiment for 2014 is one of cautious and or moderate optimism.

Companies are expecting growth in the UK economy and industry, but growth on the moderate side

Compared with last year, firms are more positive about the outlook for the UK economy – 70% of firms are forecasting an improvement with just 5% projecting conditions to deteriorate. Only 6% of firms are expecting significant improvement which means the majority view is that improvements in the year ahead will be modest.

A very similar picture is also seen for industry prospects with 62% of companies expecting conditions to pick up compared with 10% who are predicting a decline. A slightly stronger 10% of companies are expecting significant growth, but again the overriding view is that 2014 will be one of moderate growth for the sector.

As the chart below shows, the outlook for the 12 months ahead has strengthened on expectations for the previous two years.

Overall moderate growth outlook from manufacturersAverage score for UK economy and industry expectations, where 1 = significant deterioration and 5 = significant improvementSource: EEF Executive Surveys

Manufacturers' expectations in line with forecast GDP growth in 2014 of 2.4%

In line with our Executive survey, we have raised our growth forecasts for the UK economy as have many other forecasting houses. Over the course of 2013 the IMF, OECD, Office of Budget Responsibility and the Bank of England to name a few, have raised their forecasts for UK output growth. The upgrades place the UK in one of the leading growth positions in the developed world.

Our 2014 forecasts for the UK in a nutshell

  • UK economy to grow 2.4%.
  • Better balanced growth to begin to make an appearance.
  • Business investment will finally start to grow as investment intentions pick up and companies take advantage of improving credit conditions and their corporate cash balances.
  • Companies will take advantage of export opportunities despite a weaker international outlook (more on this below) and net trade will positively contribute to growth.
  • Households and consumers will continue to contribute to growth though this will likely weaken as pressure from falling real wages builds.

International prospects looking more tentative

While UK forecasts have been steadily revised up over most of the course of this year, revisions to forecasts for the rest of the world have largely been in the opposite direction. We still expect growth across all regions, but as you can see in the chart below our December 2013 central forecast shows that we are expecting weaker growth in 2014 in all our key markets than our forecasts at the beginning of 2013.

International growth forecasts revised down over time% GDP growth forecasts for 2014 over timeSource: Oxford Economics

These revisions are illustrative of greater levels of uncertainty that companies are now operating within; this will be discussed in greater detail on the blog tomorrow. We are seeing uncertainty around the world:

  • in Europe – as growth prospects remain muted and uneven across the region;
  • the US – particularly associated with political decision making; and
  • emerging markets – as China looks to rebalance and India institutes reforms.

Any notable change in the international environment and world trade would hit growth in the UK. In fact, if world trade growth were to be either half a percentage point higher or lower than our central scenario in every quarter from 2013q4 to 2015q4, UK GDP would similarly be 0.5% higher or lower by 2015.

Stay tuned for more on what Manufacturing Executives are expecting of 2014. Tomorrow we blog on the risks and opportunities for the year ahead.


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