Manufacturers make a strong start to 2007

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Manufacturing News, Source : The Manufacturer
Published : 05 Mar 2007 11:25
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Britain’s manufacturers have carried on this year where they left off in 2006, to post a strong first quarter, while keeping costs under control.

Good news from the manufacturing sector should help to allay fears at the Bank of England that improved order books for manufacturers are leading them to push through price increases. The number of firms reporting price increases remains low, according to one of the leading barometers of the sector, published today by EEF, the and RSM Robson Rhodes, while separate EEF research has demonstrated no evidence of increased inflation generating higher wage rises in the sector.

Output and orders surpassed expectations in the last quarter with engineering recording the sixth consecutive quarter of positive balances. Strong world markets have supported manufacturers’ order books in recent years and this remained the case with balances on domestic and export orders unchanged from the previous quarter.

The picture was mixed in terms of output by sector although all balances remained positive. Electrical equipment was again the most positive sector whilst motor vehicles showed a marked improvement. Metal products and other transport also reported better trading conditions.

Output was positive for the third consecutive quarter across all regions with the most buoyant conditions in the South East and London and the North West. The North East and the East of England saw the biggest turnaround from the last quarter.

EEF’s survey showed the fifth quarter on the run of increased investment. The balance of companies reporting plans to increase investment is now at its highest level since 1998. Some regions did see job cuts, although overall these were limited.

Over the past three months only a small number of companies reported raising prices. Pay settlements have also remained under control with the average settlement level in the three months to end of January (the main pay bargaining month in manufacturing) at 2.9%.

Looking forward, companies reported the highest level of confidence (+25%) since the third quarter of 2004 indicating that momentum should be maintained during the first half of this year. Firms forecast export orders continuing to improve although there is also greater optimism for domestic order books on the back of a healthy UK economy.

Bob Hale, chairman of RSM Robson Rhodes’ National Manufacturing and Technology Group, commenting on the results said: “It is very encouraging to see the strong performance in the latter part of 2006 continue, particularly the fact that exports continued to be the main driver for increased orders, despite the strength of sterling and the limited ability to raise prices. The indications are that companies are continuing to concentrate on being leaner and fitter, emphasised by the continuing increase in investment intentions.”

EEF chief economist, Steve Radley, said: “Manufacturers are taking the effects of a strong currency in their stride and are continuing to post strong figures on the back of strong world markets, improving productivity and investment in innovation. However, despite enjoying healthy order books, few manufacturers are able to raise prices. This shows that manufacturing can continue to enjoy healthy growth without the need to raise interest rates to clamp down on inflationary pressures.”

Commenting on next week’s interest rate decision, Radley said: “With three increases in such a short space of time the Bank has time to wait and assess the effect of these on the economy. Another rise so soon after the last could spread unnecessary alarm and could lead to a sharper slowdown in the economy than is necessary.”