Manufacturers rely on UK sales in midst of eurozone crisis

Posted on 7 Jun 2012 by Chris Flynn

British manufacturers have had to rely on UK orders and growth in global markets to compensate for shrinking European demand, according to a survey published by the manufacturers’ organisation EEF and BDO LLP today.

Despite the increasing instability within the eurozone, with Greece already on its second bailout and Spain crumbling beneath a mountain of debt, forcing it into selling off £1.7bn worth of bonds today, UK manufacturers stated that output across manufacturing had risen over the past three months and expected output to expand further over the next quarter.

Output and order balances strengthened further in the second quarter of 2012 from the low seen in the last quarter of 2011. A balance of 20% and 17% of manufacturers’ reported output and orders had grown respectively, up from 19% and 13% last quarter.

UK orders improved with a balance of 9% while export orders remained steady, with emerging markets compensating for flat demand from Europe.

The majority of sectors reported a stronger quarter than in the first three months of the year, but there is continued divergence between individual manufacturing sectors.

Suppliers of the transport components continued to benefit from strong demand from the civil aerospace sector, while the UK automotive industry continues to perform strongly with a range of new models set to be introduced in the autumn likely to boost sales even further.

The level of investment at many firms has dropped, as firms struggle to access finance and the trend continues for companies to hold on to their capital.

Recent official statistics showed that manufacturing investment grew 5.2% in the first quarter of 2012, rebounding from negative growth at the end of 2011.

However, cashflow could be a problem looking forward, particularly for smaller firms, with many firms with less than 200 employees expecting their cashflow to deteriorate over the next three months.

Head of manufacturing at BDO LLP Tom Lawton commented that the results highlighted how UK manufacturing remains surprisingly resilient in coping with the combined headwinds of renewed eurozone uncertainty and a very tight lending market.

“Over the next few years the success of the sector will almost certainly depend on how quickly we can switch our export focus to the emerging growth markets and this will require a shift in thinking amongst many manufacturers,” said Mr Lawton.

Expectations for the next three months are generally strong with the balance of manufacturers in most sectors expecting orders to increase. All sectors were positive about export orders with the exception of rubber and plastics.

However, EEF have warned that despite the positive results of the survey turbulence in the eurozone will have a huge impact on manufacturers for the foreseeable future.

Lee Hopley, chief economist at the EEF, said: “The main risk to activity is still rooted in the on-going eurozone crisis.  While the growing political and economic uncertainty in the region has not significantly dented confidence as yet, it is far from clear what or when the end game might be.”

The outlook continues to be flat growth for this year, but is predicted to accelerate in 2013.