Today sees the release of our third quarter Manufacturing Outlook report, in partnership with DLA Piper. The headlines are disappointing – with all indicator down compared to last quarter – but not surprising given the growing concern about global economic developments.
Our quarterly Manufacturing Outlook survey compiles responses on recent industry trends from 442 UK-based manufactures. Here’s my top 5 takeaways.
1. All indicators have weakened over the past three months.
The main output and orders indicators have continued to slide over the past three months. From a high of +26% in 2014q2, the balance of companies reporting growth in output has edged down in every subsequent quarter to hit -2% in 2015q3. This is the first negative balance since the beginning of 2013 and the lowest since the end of 2009. A similar trajectory has been seen across new orders – from both UK and overseas customers.
2. But UK industry is diverse and growth prospects vary accordingly
Over the past year we’ve seen particular weakness in output and orders across sectors exposed to oil and gas related activity – a consequence of the slump in the oil price from mid-2014. This continues to affect sectors such as mechanical equipment and metals. However consumer facing sectors, such as food and motor vehicles are bucking the trend with positive responses on output and orders over the past quarter – a trends that is expected to continue in the final month of the year.
3. What happens in China does matter
Only 6% of UK exports go to China – but that still make it one of the UK’s top ten markets for goods exports. Just under half of companies surveyed are concerned and monitoring grow developments in the region. And the proportion of companies singling out Asia as a potential growth region for their business has halved since the start of this year, to around 13%.
4. Longer term, confidence has cooled not collapsed
Manufacturing has clearly slowed since the start of the year, but confidence has not turned to outright pessimism for the year ahead. Companies are still reporting modest levels of optimism about their business prospects in the next 12 months. Just as important, however, are on-going plans to increase investment (a balance of +2%) and take on new employees (net +5% and the only measure to beat last quarter’s expectations).
5. Manufacturing will still grow this year, but not by as much as we were forecasting at the start of the year
There are implications for our full year forecasts from the weaker than expected performance of manufacturing reported by ONS for the first half of the year, the more negative picture in our latest survey and the increase in global risks. We now expect manufacturing to expand by 0.7%, down from our previous projection of 1.5%. We’ve seen similar downgrades to industry forecasts across other parts of the developed world, highlighting that manufacturers while exposed to global risks are not alone in seeing a loss of growth momentum this year.