Manufacturing growth remains on track

Subscribe to Campaigning blog feeds

Published

The EEF/BDO 2014q3 Manufacturing Outlook survey brings mainly - but not universally - positive news about trading conditions across the sector.

  • Output and orders balances positive, but down from last quarter.
  • Domestic market remains the driver of output growth.
  • Manufacturers expecting stronger export demand, despite past disappointment.
  • Recruitment and investment intentions ease back, but remain solid.
  • Manufacturing growth forecast for 2014 revised down slightly to 3.3%.

Manufacturers continue to report output and orders growth

Output and orders balances slip back but remain stronger than long-term average% balance of change in past three monthsSource: EEF Business Trends Survey

Output and orders balances have edged down over the past three months, but both remain above the long-term average over the series. Following more than a year of very strong positive balances, activity is returning to a more normal level. The UK market is providing more support for orders growth and the balance of manufacturers seeing export orders increase turned negative for the first time since early 2013. Expectations on both output and orders for the next three months are firmly positive, with balances of 22% and 20% planning for growth respectively.

More skills please

Recruitment and investment hold up% balance of change in past three monthsSource: EEF Business Trends Survey

Other indicators on employment and investment point to some cautious optimism. There has been a positive balance of companies planning to raise investment levels for 17 consecutive quarters and the positive run of recruitment balances tallies with growth in workforce jobs in official statistics.

Exchange rate

Margins come under increased pressure% balance of change in export prices and margins in past three monthsSource: EEF Business Trends Survey

In recent surveys there has been little move in our prices and margins series, mainly as a result of a fairly benign commodity price environment. That holds true this quarter for sales in the domestic market, but there has clearly been an increase in the downward pressure on profit margins on sales to overseas customers. This is in part a likely consequence of the steady appreciation of Sterling.

On track for growth

Manufacturing set to grow in 2014 and 2015% annual change in outputSource: EEF and Oxford Economics

We have a slightly softer than expected reading in our survey indicators this quarter, but the main driver of the downward revision to our 2014 manufacturing growth forecast was the weaker than expected growth outturn for 2014q2. Quarter-on-quarter growth should continue into 2015, with annual growth rates coming in at 3.3% in 2014 and 2.1% next year. There will be sectoral variation within this with motor vehicles, rubber and plastics and non-metallic minerals posting the largest gains.

Author

Chief Economist

Other articles from this author >
Online payments are not supported by your browser. Please choose an alternative browser or make payments through the 'Other payment options' on step 3.