Confidence returns: manufacturing surges to three year high

Posted on 2 Sep 2013

Output and orders rebound to balances last seen in 2010 and investment intentions rise to six-year high, EEF and BDO annual survey reveals.

More evidence was presented today that manufacturing is a king plank in the recent economic recovery, as output balances reached their highest level for three years in a benchmark business survey.

Stronger domestic demand, often the laggard behind exports in recent months, has led the rebound, the survey by EEF and business advisors BDO LLP reveals.

But export conditions have also picked up with the balance of companies seeing export sales rising to a two-year high in the past quarter. The increase in output is broad-based across all sectors, consistent with recent official statistics.

Investment intentions, especially among SMEs, have also risen sharply to some of the highest levels seen in the survey’s history.

EEF marked this as “critically important if we are to see a rebalancing of the economy towards net trade and investment and, avoid relying on the consumer and the housing market to drive the economy forward.”

Highlights of the EEF/BDO survey

• Output and orders rebound strongly to balances last seen in 2010
• All sectors saw gains
• Domestic markets leading rebound
• Investment intentions rise to six year high
• Recruitment holds steady
• Forecasts for 2014 upgraded for both GDP and manufacturing

EEF is confident that the rebound will run on into next year. Chief economist Lee Hopley said “There is growing confidence that improving trading conditions will continue into the final months of this year and then accelerate through the gears in 2014.

But, ever cautious, she added, “While the signs of recovery that have emerged so far this year are positive, the need for better balanced growth from net trade and investment remains a necessity. As companies become more confident about their growth prospects, we need to see this translate into commitments to invest in new capacity, and for this to take place in the UK.”

Tom Lawton, head of manufacturing at BDO LLP said “A domestic market at its strongest for almost three years, backed by export sales at a two year high, means UK manufacturers across all sectors and throughout the supply chain are feeling the benefits of an impressive return to confidence.

Mr Lawton added, “The positive change in investment intentions is a powerful and important indicator, and key to the future growth and positioning of the sector in the global market. But let us reiterate, this is not ‘manufacturing sector – job done’ for the government,” adding that the figures should act as a spur for further efforts “to ensure the sector gets the support it needs to act as an engine of change for the UK economy.”

A balance of 32% of companies reported increased output in the survey, up from 12% in the last quarter and the highest since the beginning of 2010. Orders balances also increased significantly, up to 27% from 7% in the last quarter.

“A domestic market at its strongest for almost three years… means UK manufacturers across all sectors and throughout the supply chain are feeling the benefits of an impressive return to confidence.” Tom Lawton, BDO

In contrast to recent years, the survey showed broad based increases for all sectors, the first time this has happened for over a year. The strongest positive output and orders balances were reported in the electrical equipment, 42% and 35% respectively, and motor vehicles, at 44% and 39%, sectors.

Following the survey EEF revised its 2014 forecast, saying that next year growth is expected to accelerate with the economy growing by 2% (1.8%) and manufacturing by 2.1% (1.9%).

Last Friday, the British Chambers of Commerce said that it expected manufacturing GDP to decline in 2013 by 0.8%, and to grow by just 1.1% in 2014.

The EEF survey, conducted in the first three weeks of August, was answered by 290 companies, a smaller pool than is typical for this survey.