An uncertain return - the future path of manufacturing investment?

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The level of business investment matters. Its contribution to the UK's growth can support the rebalancing of our economy and investment in new plant and machinery and other intangibles is a critical component of business competitiveness and productivity.

Historically the UK's investment levels have not compared especially favourably with many of our developed world competitors. And despite economists' hopes that a business investment revival would drive the UK's economic recovery forward, the path of investment growth has not been as strong as hoped. EEF together with Lombard are undertaking an annual survey - Investment Monitor - to see whether there are signs the UK's investment performance may be starting to change? For manufacturers, at least, plans to increase investment do now appear to be on the increase.  

Business conditions have been on an improving trajectory

In the past two years manufacturers have, on balance seen an improvement in both sales and profitability. A starting point for more ambitious plans to investment in new plant and machinery.

Investment levels on the up

Almost half of manufacturers in our survey plan to increase the amount they invest in new machinery in the next two years.

BUT average increases look set to be relatively modest, with six in ten companies planning an increase pencilling in growth of less than 10% over the next two year.

HOWEVER, manufacturers investment plans are increasingly much broader than machinery - 70% will also be upping their spend on training and recruitment, 63% plan to invest more on branding and marketing and 55% will increase expenditure on research and development.

It's not a question of plant and machinery OR these areas of intangible investment, manufacturers have to invest broadly and 30% of manufacturers agree that business priorities such as innovation, training and software are becoming more important.

Confidence, capacity and company strategy

The main drivers of higher investment are the need to replace equipment as technology has moved on, signs of capacity constraints as demand has started to pick up, improving levels of confidence and the appetite for many companies to move into new areas of business. More confident manufacturers in our survey are planning to grow their investment plans more rapidly in the coming years.

Economic uncertainty continues to cast a shadow over investment plans for many companies. Indeed, affordability remains a constraint on investment plans as both internal resources and the availability of external finance (particularly for smaller companies) are somewhat limited.

Five point plan for government

Manufacturers are investing broadly and government needs to align its policy priorities with the private sector's wider investment plans. 

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Chief Economist

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