Manufacturing Outlook 2017q1 6 key highlights | EEF

Manufacturing Outlook 2017q1: 6 key highlights

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The results from our latest survey of manufacturers, in partnership with BDO, is in. And the news is all good. Unless you don’t think price rises are good – in which case, it’s mostly good.  Here are the six things you should absolutely know about the current state of manufacturing.

1) Output is on the up

The balance of manufacturers reporting increased output and orders in the past three months was positive for the second quarter running, following a fairly weak trend which began in mid-2015. In both cases response balances – at 31% and 29% respectively – were considerably stronger than manufacturers’ were anticipating three months ago. Surprising … not so much. We’ve been out talking to industry over the past few months and we’ve met lots of busy manufacturers that have seen new orders on an upward trend since the end of last year.


2) Positive output balances are everywhere…

In line with the almost universally positive conversations with manufacturers is the clean sweep of positive sector balances. This is not a particularly common occurrence in our survey – especially in the past few years which have been dominated by the steel crisis, low oil price and sluggish global investment. All of these factors seem to have turned a corner, and with a decent showing in the construction data of late and solid consumer confidence, the foundations are there for more broad based sectoral growth. Inevitably, this translated into a pretty even performance in output balances across UK regions.



3) The upturn in global demand is helping too

 The other indicators firmly in positive territory relate to orders. In the past couple of quarters the resilience of UK demand has been evident on our survey, but an expected turnaround in overseas sales has only just materialised. It has more than materialised – the balance of manufacturers reporting increased export orders in the past three months surged to 25% from -2% in the previous quarter. And there seems plenty of support for UK manufacturers in the rest of the world. In successive surveys over the past year more manufacturers have been reporting improving signs of demand coming from Europe, the US and more recently the Middle East too. Clearly, the weaker pound is putting a fair bit of extra wind in the sails of UK exports.



4) Sterling …. The wind beneath my import prices

There is no shortage of blogs from us on the impact of Sterling’s depreciation on input costs. The pass though seems like it’s just getting started. We’ve seen companies planning to increase prices in the domestic market since our 2016q3 survey, but in the past three months more companies report actual increases in prices, with even more putting in place price increases in the next three months. The result – something of an easing in the squeeze on margins. And, more than likely, higher consumer prices later this year.


5) More optimism = investing and recruiting

One additional consequence of Sterling’s depreciation that manufacturers have drawn our attention to is the impact on the price of capital goods – many of which are also imported. Still, this doesn’t seem to be cancelling out the need for a bit more capital expenditure to meet higher levels of demand. The more flexible option of increasing employment has taken off to a greater extent this quarter. Whether investment balances continue to ramp up, with a bit of a lag, or whether Brexit undercurrents place a cap on investment is yet to be seen. Still the key thing is that expectations of strong output and orders balances in the next three months is good for the sector’s investment and employment outlook. For now.


6) Survey strength prompts a review of forecasts

A better than expected end to last year together with the view that the first half of this year is shaping up to be pretty good for many manufacturers sent us back to the drawing board on our forecasts for manufacturing output growth this year. We are now projecting growth of 1% this year. But we see more risks to the growth in the sector in 2018, with more caution about investment as we approach Brexit-day and some one-off factors holding back growth in the auto and pharma sectors, growth of around 0.1% looks likely in 2018. Though the thing I can be more certain about is that international and political events will mean this is an evolving judgement over the next year.

You can read the full report here.


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