Manufacturing growth to leave economy in its wake in 2014

Posted on 2 Dec 2013 by Callum Bentley

Britain’s manufacturers will grow faster than the UK economy overall next year, with increasing confidence being reflected in recruitment and investment intentions according to a major survey published today by EEF and accountancy firm BDO.

Key findings

  • Output and orders balances positive, but down on last quarter
  • The domestic market is providing more support for output growth
  • Manufacturers of all sizes added jobs over the quarter
  • Investment balances head even higher
  • Growth forecasts revised up for 2014

According to the survey, manufacturing output headed higher for a balance of companies in the final months of this year and, taken together with a growing orders pipeline, EEF is forecasting that the sector will grow by 2.7% in 2014 compared to 2.4% for the economy overall.

The improved performance during 2013 has also resulted in EEF revising its forecasts for this year, showing manufacturing contracting by just 0.1% and the economy growing overall by 1.4%. However, the risks to a strong, sustained recovery remain evident with both output and orders balances down on expectations from the previous quarter with the export picture in particular looking more uncertain than in previous quarters.

The continued strength in plans to invest and recruit does point to some optimism that the improving trend in manufacturing seen so far this year will be sustained.

Commenting, EEF Chief Economist, Ms Lee Hopley, said: “Over the course of the year we

Lee Hopley, Chief Economist, EEF
Lee Hopley, Chief Economist, EEF

have seen a definite turnaround in prospects for manufacturing and this looks set to continue into next year. This increased confidence is evident in companies looking to increase their headcount and, most importantly for balanced growth, step up their investment. However, uncertainties in the global economy remain and a sustained recovery is not secure. As a result, growth must remain a priority for government over the remainder of this parliament, starting with the Autumn Statement this week.”

Tom Lawton, Head of Manufacturing at BDO, said: “Continued strong demand within the UK domestic market is very encouraging and this does suggest that a sustainable manufacturing recovery has gained a foothold in this country. However, international markets hold the key to a fully-fledged and meaningful improvement for in UK manufacturing and these markets remain frustratingly fragile. We haven’t missed the boat yet, but companies need to stand ready and be supported by an accessible, Government backed export framework in order to take full advantage of the recovery on the continent and beyond once it starts.”

According to the survey, output and order balances fell back from the three and two year highs reached last quarter. Responses, however, remain strongly positive with balances of companies indicating output and orders increased in the past three months coming in at 19% and 18% respectively.

Looking at sector results, the strongest positive balances were reported by companies in the motor vehicles and electronics sectors. The domestic market continues to be a source of strength with a positive balance of 15% of companies indicating UK orders increased. This strength is widespread and all sectors posted positive domestic order balances. Export balances, in contrast, drifted down and were lower than expected.

The slower growth coming from some emerging markets and continued sluggish growth in the Eurozone are contributing factors.

Tom Lawton, head of manufacturing at BDO.

Investment intentions for the year ahead strengthened further from 24% to 27% and remain at a six year high.

This quarter, as with the employment results, companies of all sizes have raised their investment plans, a promising sign for official business investment statistics as large companies are responsible for the majority of UK business investment. This result may also indicate that companies across the supply chain are putting in place the plans necessary to allow them to meet the uptick in orders coming through their doors.

Companies in all sectors indicated they had, on balance, increased investment intentions for the year ahead despite some sectors seeing output and order balances slow. In addition, companies’ confidence for the year ahead is reflected in recruitment which has remained steady.

A positive balance of 10% of companies reporting increased employment in the past three months, whilst the balance has increased to 16% for the next three months.

Looking forward, the survey shows expectations for the next three months remain positive. Output is expected to improve next quarter with the balance of manufacturers expecting an increase ticking up to 25%, whilst forward-looking orders balances are broadly steady at 19%.