So far this year we're seen a great run of positive data about UK manufacturing. And our latest survey shows that run isn't about to run out of gas any time soon. EEF's Manufacturing Outlook report, in partnership with BDO contains another bumper crop of positive data about industry trading conditions.
Manufacturing 2014q2, the headlines:
- Output balances remain solidly positive, with a balance of 26% of manufacturing reporting rising production levels in the past three months.
- UK demand supports orders growth over the quarter, but export balance comes in weaker than expected.
- Short term confidence holds up, forward -looking output balance hit seven year high.
- Exports expected to strengthen in the coming months.
- A balance of 28% of manufacturers planning new investment and a balance of 23% report new hiring intentions.
- Growth forecasts for manufacturing upgraded to 3.6% in 2014.
Output up, orders up% balance of change in past three monthsSource: EEF Business Trends Survey
Manufacturing activity remained robust this quarter, with a strong positive balance of +26% of companies reporting a higher level of production over the past three months, up from +22% in the first quarter of 2014. This marked the fifth successive positive quarterly balance and was in line with firms' output expectations in our previous survey.
Manufacturers reported a fourth consecutive quarter of solid domestic demand, with a positive balance of +16% of companies noting an increase in UK orders over the past three months, an identical result to our previous survey. There was, however, a clear softening of overseas demand, with a balance of +9% of manufacturers reporting a rise in export orders this quarter, down from +16%.
Positive output balances across all sectors
% balance of change in output in past three monthsSource: EEF Business Trends Survey
In line with expectations reported in last quarter's survey, all sectors reported an increase in output in the last three months. Motor vehicles and rubber and plastics manufacturers reported the strongest sets of results, with balances of 43% and 36% of companies reporting an increase in output respectively. These were little changed from the previous quarter's figures. There was notable softening in the output balances for the electrical equipment and electronics sectors compared with last quarter, but in both cases expectations for the next three months are firmly positive.
New investment planned
% balance of change in next three monthsSource: EEF Business Trends Survey
One notable area of improving confidence is in companies' cashflow position. Following a fairly stable picture on cashflow expectations between 2011 and 2013, cashflow balances have been steadily improving over the past year. A pick-up in sales, a downward drift in the cost of inputs and some recent tax changes are all likely to be contributing to the improving cashflow picture. Also encouraging is what this should mean for investment plans; historically the two series are closely linked in our survey, so confidence in future cashflow should also support commitments to new capital expenditure.
Forecasts revised up
% annual change in outputSource: EEF and Oxford Economics
The manufacturing sector had a strong start to 2014, growing by 1.4% in the first quarter of the year.With our Business Trends survey showing manufacturing activity remained robust this quarter, with manufacturers in all sectors recording positive output balances our forecasts for growth in 2014 have been revised up. We now expect the sector to expand by 3.6% compared with our forecast of 2.7% three months ago. We also expect broad-based growth, with output set to increase in eleven of the thirteen sectors we provide forecasts for.