Britain’s
manufacturers have begun 2018 in the same upbeat manner they left last year on
the back of the continued improvement in global demand together with a pick-up
in the UK market, according to a major survey published by EEF, the
manufacturers’ organisation and accountancy and business advisory firm BDO LLP.
According to the
EEF/BDO Manufacturing Outlook Q1 survey, manufacturers are continuing to ignore
the ongoing political uncertainty at home as improved global demand, from
European and capital equipment markets in particular, continues to feed growth
across most of the manufacturing supply chain.
According to the
survey, two thirds of manufacturers saw the EU as offering good prospects for
growth (59% in Q4 2018) with the next best markets of Asia and North America
seen as supportive by around a quarter of companies.
As talks on Brexit
loom, the clear and substantial importance of European markets to UK
manufacturers, backs EEF’s view that it is essential the Government seeks an
agreement with the EU which maintains trading arrangements as close as possible
to those which currently exist.
The survey shows
some balances have come off the multi-year highs seen in the second half of
last year but output, orders, investment and recruitment all remain
significantly above their long-run average. This strong performance, has led
EEF to upgrade growth forecasts for manufacturing for this year with new
forecasts for 2019 also indicating further expansion for manufacturing.
While 2017 saw good
growth across manufacturing sub-sectors, with only a few exceptions
(pharmaceuticals and rubber & plastics) a few clouds are appearing on the
horizon for some industry segments. There are some signs that automotive and
construction supply chains are seeing signs of weaker demand, leading to
greater sector variation in performance this year and next.
Commenting, Ms Lee
Hopley, EEF Chief Economist, said: “Manufacturing activity stepped up a gear
through 2017 providing industry with some decent momentum coming into this
year. The importance of a buoyant global economy to export-focused
manufacturing sectors is again reinforced, with growing overseas demand
encouraging international manufacturers to ramp up their investment which in
turn is spurring particularly strong activity in UK capital goods sectors.
“While this will
help top line growth in UK industry and the wider economy it’s also important
that the global race to increase investment and adopt new technology is not one
in which the UK is left behind. As the Chancellor sets out some thinking about longer
term economic priorities in his Spring statement next week, manufacturers will
want to see a focus on how the new industrial strategy can help cut through
Brexit uncertainty and turbo-charge investment ambitions right across
manufacturing supply chains.”
Commenting Tom
Lawton, Partner and Head, BDO Manufacturing, said: “Throughout 2017, the UK
manufacturing sector proved itself to be remarkably resilient and delivered a
strong overall performance and it is promising to see this is being continued
into the first quarter of 2018. With healthy output and order balances and
growing export demand, manufacturers are continuing to recruit and invest –
providing a much needed boost to the UK economy.
“These results do
indicate continued and growing opportunities in the EU and around the world but
the sector also faces the challenges of the uncertainty of Brexit and the
increasing use of automation and Industry 4.0. Therefore, it is more important
than ever for the Government to provide real clarity on its plans for a working
and effective Industrial Strategy and Brexit. Manufacturers will need this
clarity if they are to continue to commit to the significant capital
investments required to support long-term growth.”
According to the
survey, both output and total orders remained in very positive territory at
+30% (+34% in 2017 Q4) and +30% (30% in Q4) respectively. Looking forward,
manufacturers are expecting this level of growth to be sustained on the back of
an impressive global economy.
This growth in world
trade has been matched, after a period of consumer-related weakness and
uncertainty in 2017, with a large improvement in the UK orders balance at the
start of this year. Export orders eased slightly to +29% (+33% in Q4) but
domestic order balances almost doubled to +21% from +12%.
Nevertheless,
longer-term confidence amongst manufacturers about their own firm-level
fortunes continues to place growing pressure on capacity, leading manufacturers
to further up their recruitment and investment plans. Investment balances
remain positive, but eased slightly to +18% (20% in Q4), whilst manufacturers
continue to recruit heavily with the balance of +21% close to the three year
peak seen in the second half of last year.
The survey also
shows a picture of continued increases in prices which appear likely to be
sustained given companies are pencilling in further increases for the next
three months. Given the focus of the Bank of England on prospects for
inflation, this pattern could feed into the policy mix for further increases in
interest rates this year.
As a result of the
strong performance by manufacturing through 2017 and the positive outlook for
2018 EEF has upgraded its forecasts for the sector to +2.0% from 1.4%
previously. This is faster than the UK economy overall where EEF is forecasting
growth of 1.5% in 2018. Next we see growth slower growth across the economy and
manufacturing with expansion of 1.3% and 0.6% respectively.
The survey covered
378 responses and was carried out between 31 January and 21 February.
