Hiring and exports surge

Posted on 6 Dec 2010 by The Manufacturer

Output and exports hit top gear and firms recruit as EEF/BDO survey corroborates last week’s record PMI figures.

Britain’s manufacturers continue to report strong trading conditions, with output indicators remaining at record levels for the third quarter in succession, according to a survey published today by EEF and BDO LLP.

This strong performance, which remains consistent across all sectors and regions, has been underpinned by the robust demand from overseas markets.

Exports to the BRIC economies – Brazil, Russia, India and China – have made a particularly big contribution to export growth since the recovery began.

From the survey results, EEF, the manufacturers’ organisation, has forecasted that engineering and manufacturing will continue to outperform the rest of the UK economy in 2011.

Manufacturers have been recruiting new employees, according to the survey, as well as making new investments in response to the stronger than expected recovery in production. But further evidence suggests that there is still some caution around making large investments for growth.

The forecast for 2011 reveals a softening in optimism, particularly around the outlook for domestic order intake. However, expectations still remain above the long term survey average.

“Manufacturers should enter 2011 on a strong footing,” said EEF chief economist Ms Lee Hopley. “The survey has shown record responses on output and orders for much of this year and, if this continues, we should see exports and investment delivering better balanced growth across the economy.

“But several risks remain firmly on companies’ radar… and the strong bounce back has also brought challenges, with some manufacturers’ struggling to get the skills they need and facing rising costs.”

Tom Lawton, head of manufacturing at BDO LLP, said: “This recovery shows that manufacturing can be the flag bearer for the vital private sector growth we need as impending cuts mean the public sector must take a back seat. Manufacturers now need to take advantage of this continued growth by investing in capital equipment and the skills within their workforce. They should also take the opportunity provided by the UK’s competitive currency to grow market share overseas both in the Eurozone and emerging markets.”

Over the last three months, output and new order balances were +33% and +32% respectively, both broadly unchanged since last quarter which were record levels since the survey began in 1995. This growth has been driven largely by export markets (+26%), though the domestic order balance improved slightly to +22%.

The survey was also notable for three other factors.

Firstly, the balance of companies recruiting improved again significantly to a record balance of +23%, the strongest in the survey’s history.

Secondly, investment intentions doubled from the last quarter to +15%, although anecdotal evidence suggests that this is mainly short term small scale capital expenditure as companies remain wary of committing to bigger, long term investments.

Third, there has been a significant jump in the number of companies expecting to raise domestic (+16%) and export prices (+12%). This largely reflects an increase in the cost of raw materials.

EEF also published its latest forecasts for the UK economy and manufacturing. These show the economy growing by 1.8% and 2.1% in 2010 and 2011 respectively whilst manufacturing will grow by 3.8% in 2010 before easing back slightly to 3.2% in 2011.

Highlights of the EEF/BDO Q4 manufacturing survey

• Strong positive output and order balances for third quarter running.
• Order balances remain firms across all parts of manufacturing.
• Investment and employment intentions remain positive.
• Significant jump in price balances
• Optimism holds for next three months.
• Manufacturing to outperform rest of economy in 2011