KPMG says strong signs of recovery

Posted on 29 Mar 2010 by The Manufacturer

Business activity, revenues and profits are recovering, KPMG survey shows.

• Optimists now outweigh pessimists by five to one
• UK manufacturers most optimistic in EU

Further evidence of the economic recovery taking hold in the UK manufacturing sector comes in the latest KPMG Global Business Outlook survey, released Friday March 26.

Compiled by market research firm Markit for KPMG, the data shows strong levels of optimism around key measures such as business activity, revenues and profits.

In fact, 68% of UK manufacturers expect to be busier in the next 12 months compared to just over one in ten who forecast a drop in activity levels, giving a net balance of +58, which is an increase of eight on last Autumn’s survey and demonstrates a vigorous bounce-back from the all time low of +1 just over a year ago (January 2009).

UK manufacturers are the most positive in Europe and are even significantly more upbeat than the Indian manufacturing sector, which registered a +41 net balance.

Manufacturers believe that both revenues (+51) and profits (+59) will rise while employment expectations are the highest they have been in the survey’s seven year history at +21.
Commenting on the findings, Gautam Dalal, KPMG’s head of diversified industrials, says: “The UK manufacturing numbers are as reassuring as we could have hoped for at this stage of the recovery. The continuing competitiveness of the pound has doubtlessly aided this export led sector and contributed to the optimism present.

“For me though, there is still an element of fragility about this recovery and this will not be helped in the short term by the uncertainty which inevitably surfaces as we head into an election period.

“We also need to ask longer term questions about where manufacturing will figure in the government’s efforts to rebalance the economy and reduce our dependency on the financial services sector. If we assume that manufacturing is going to be part of that rebalancing, are we in a suitably fit state to take advantage?

“Finance is obviously one issue, although, as confirmed in last week’s Budget, the government-assisted banks are being encouraged to lend more to business generally. However, I am just as concerned about our skills position. We have long assumed that the UK holds inherent advantages in terms of its specialist, niche and high end engineering skills. I fear that this may no longer actually be the case and that we could be in for a nasty surprise unless close attention is paid to our longer term skills development.”

Digging deeper into the survey data, the percentage of respondents who predict no change in the coming year — and who thus have no impact on the net balance — tends to stand around 20%-25% in manufacturing and around 30% in services. Of those who have a firm view one way or the other, optimists now tend to outnumber the pessimists by as much as five to one.