As another day of the heatwave is here for many of us, it’s hard to think back to the dark, cold, wet start of this year. Is it just the weather that has changed for UK manufacturers, or has anything happened to modify their expectations for the outcome of 2018?
All the way back in January…
We started this year, in partnership with insurers AIG, by exploring what manufacturers’ expectations were for the year ahead – in our seventh annual Executive Survey. So what was on the radar?
1. Sunny times overseas boosted the outlook
- A pick-up in global activity looked set to support a year of improvement in industry fortunes
- In contrast to a buoyant assessment of prospects for the rest of the world, manufacturers were less confident about the outlook of the UK economy
- The global outlook impacted on how companies viewed their own business prospects and firms were planning for improvements across productivity, sales and employment indicators – and encouragingly, all manufacturing sectors seemed to be ready for growth this year.
2. As always, some grey clouds loomed overhead
More companies observed a risky outlook compared with 2017’s survey – half of companies said they saw more risks than opportunities for 2018, while a quarter thought the opposite.
Front of mind were things that could go wrong in burgeoning export markets - further action in the US that looked like protectionism or wobbles in big emerging economies such as China had the potential to knock this positive sentiment off course.
And the B word. Brexit was expected to continue to apply pressure including the impact on the attractiveness of the UK as a place to both work and do business.
3. But UK manufacturers are always ready to weather any storm
With a busy but risky year ahead, firms were planning new strategies to help ensure success. Topping the list were actions that manufacturers would be taking in order to meet increased demand and deliver expected productivity aims. And while there was a dominance of ‘business as usual’ strategies (process innovation and efforts on overseas marketing, for example) there were also a host of planned actions closely related to potential risks on the horizon – such as increasing investment in automation in order to meet capacity constraints.
Was the long range forecast right?
Whilst we can’t definitively answer that question yet, seven months into this year we can see what’s happened so far.
Our Q1 Manufacturing Outlook survey painted a rosy picture for the sector with trading conditions for companies remaining buoyant at the start of the year, some differences were already starting to emerge with not all manufacturing sub-sectors achieving the same positive output and orders balances. But some clouds were already emerging, with the prospect of US trade wars with… errr… nearly everyone, were getting more possible by the tweet.
Fast forward another three months to our Q2 survey and we saw that the upturn we had seen in the back end of 2017 had definitely eased – and some of those risks identified by firms were coming to fruition. Firms were still positive, just not as positive as they had been earlier in the year.
Why? Key export markets were losing some momentum, for example, although still positive, there was a step back in survey respondents reporting Europe showing positive signs of demand. There continued to be sector variances, with construction facing sectors worse off after Carillion collapse and the bad weather impact. The somewhat fragile confidence had also hit investment intentions.
So is the outlook for the rest of the year a bit gloomy then?
Many of the risks identified by manufacturers at the start of the year are still to play out, and there is some uncertainty about where these will end up. As Lee discussed a few weeks ago, on-going weakness in industrial production – a good chunk of which is manufacturing – is still evident in official statistics.
We’ve got a couple of chances coming up to assess how manufacturing is faring. Our survey for the third quarter of this year will shortly go into the field to ask manufacturers how business conditions are. Will orders and output continue to be positive but drifting downwards, as has been the pattern so far this year? Will global trade continue to provide some warmth for growth?
We shall also see in our annual Investment Monitor report in October what factors are impacting on manufacturers’ investment intentions – for the positive or negative.