Manufacturing growth on the way, but more investment needed

Posted on 5 Aug 2013

UK manufacturing is expected to grow this year and next, but the lack of business investment risks to undermine any potential improvement.

In its Economic Prospects report, manufacturers’ organisation EEF said it is expecting consumer spending and improved confidence to provide a boost to the UK economy.

As a result, EEF is forecasting GDP growth of 1.1% this year, up from 0.9%. Growth is then expected to steadily increase through 2014 to 1.8%.

While manufacturing is expected to contract this year by 0.7% due to a poor end to last year, output is expected to pick up in the second half of the year and expand by 1.9% in 2014. Continuing growth in exports, especially to non-EU markets, which have grown 45% in the last four years, will be a source of growth for the sector along with recovering domestic demand.

However, any slowdown in world trade driven by weaker than expected activity in the US and China would have implications for some manufacturing sectors.

According to the manufacturers’ organisation, the pace of job losses is expected to be very modest this year and next, and well below those seen in the decade leading up to the recession.

EEF chief economist Lee Hopley commented: “The events of the last few years have heavily impacted on manufacturing but we are now seeing far more positive signs that growth will pick up. With the UK economy beginning to move through the gears and glimmers of hope in the eurozone, more broad-based growth for manufacturing in the next few years should be expected.”

Despite the improved picture for economic growth in the UK, EEF highlighted that investment this year is expected to be almost 10% down on 2012. It is forecasting business investment to increase by 6.4% in 2014, followed by 6.9% in 2015.

Hopley concluded: “Significant risks remain, particularly the continued failure of investment to show signs of life. We are still some way behind the previous peaks and, if we are to benefit from continued research, innovation and export growth then investment needs to pick up substantially.”