And the results are in ... from our 2017q2 Manufacturing Outlook survey

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Before we get to the UK General Election outcome, we have the results of EEF’s 2017q2 Manufacturing Outlook Survey. The momentum that we saw building at the end of last year has been sustained and we once again have a positive read out on the health of the UK manufacturing sector over the past three months, with this trend expected to continue going into the second half of the year.    


Here are the headlines:

  • Positive trends continue across UK manufacturing.

  • Output balances remain healthy across all sectors.

  • Exports doing heavy lifting as demand in all major markets expands.

  • Recruitment and employment intentions remain strong.

  • Forecasts for manufacturing growth in 2017 and 2018 revised upwards.


And more detail in pictures…

Output & orders


Output balances fell short of last quarter’s expectations at 26% in 2017q2 down from a four-year high of 31% in the previous quarter. Yet the picture of a manufacturing sector in rude health is not thrown off track as output balances remain anchored well above their long-term average and significantly higher than a year earlier.

Looking forward, a net balance of a quarter of companies expects the expansion in manufacturing activity to continue into the third quarter reflecting a supportive economic environment both domestically and abroad.



This positive trend is evident across all of the main sectors covered by our survey and for the second quarter running. Particular strength is seen in the capital goods sectors – electrical, mechanical and electronics.  A bit more optimism on the investment plans of UK companies and some recovery in offshore activity will be helping to support demand in these industries. More importantly, the recovery in global investment pushed export sales in these sectors higher in the past three months, overtaking the manufacturing average.

Output balances took a step back in the metals industry this quarter. Earlier this year, the sector enjoyed a rally in global metal prices as well as vigorous demand from major export markets. While remaining in positive territory, growth prospects moderated to some extent in the second quarter, perhaps reflecting a moderating growth pace in the automotive industry after an impressive 2016.

Export markets


Reasons for optimism about the domestic market have now been overtaken by opportunities in the rest of the world. Last quarter saw the largest quarter on quarter gain in the export balance in our survey’s history. And in the most recent three months the balance of companies increasing their export sales advanced further.


Fewer manufacturers are indicating that they are experiencing no improvements in demand in any key export market, with notable gains reported in European markets. This tallies with the strong PMIs seen across Europe in recent months             



The steady rise in inflation lost some ground in the second quarter of 2017, against last quarter’s expectations of further price increases. While the pass-through of the past sterling depreciation is still on-going, its magnitude moderated this quarter as the uptick in input costs eased from earlier surges. However, this had an impact on manufacturers’ profit margins on domestic sales which slipped further into negative territory erasing some of last quarter’s gains.

Employment & investment


The recovery in manufacturing employment is firmly on track this quarter as the balance of companies taking on new employees in the past three months soared to its highest level in three years. Investment balances were in positive territory for the third quarter in a row, although slightly down from last quarter’s two-year high. As economic surprises continue to be on the upside, manufacturers are expanding capacity to meet increased demand.



Manufacturing output grew by 0.3% in the first quarter of the year – in line with our expectations. However, we’re still getting a bit more optimistic about the growth outlook this year and next.  The stronger performance and prospects for capital goods sectors have materially impacted on our expectations for the mechanical and electrical equipment sectors in 2017. We do expect some offsetting weakness this year in pharmaceuticals.  Overall this leaves our projections for manufacturing expansion at 1.3% in 2017 and 0.5% in 2018, up from 1% and 0.1% respectively last quarter. We have not revised our GDP forecasts and you can find out more about our assumptions on this here.


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