Export rebound fuels strong manufacturing outlook

06 March 2017

  • UK manufacturing enjoys a stronger Q1 than expected – sector posts positive balances in every key performance indicator
  • Strong output balance of 31% smashes expectations and hits highest level since Q3 2013 – at the same time a balance of 29% of firms see orders heading in the right direction
  • Export demand improves significantly – just a fifth of firms (20%) are yet to see any pick up in overseas markets
  • Business confidence, investment and employment intentions all rally – but further domestic price hikes are on the cards as manufacturers seek to alleviate pressure on margins
  • Positive trends look set to continue into the next quarter – EEF pushes 2017 growth forecasts higher.

UK manufacturing has got off to a much stronger start to the year than expected, defying firms’ own expectations and providing a much-needed boost to confidence, recruitment and investment, according to the Q1 2017 Manufacturing Outlook released today by EEF, the manufacturers’ organisation, and accountancy and business advisory firm BDO LLP.

The latest quarterly survey – the first this year – reports positives across all the sector’s key indicators with performance in vital areas such as output and orders smashing all expectations. The balance of firms reporting an uplift in output (31%) and orders (29%) is double what was expected, with the output balance hitting its highest level since Q3 2013. Importantly, all of UK manufacturing’s sectors are seeing this positive trend.

The figures demonstrate manufacturers’ unfailing ability to ‘make hay while the sun shines’, with firms clearly capitalising on a broad based export recovery fuelled not only by the drop in the value of sterling, but also by an improvement in the economic performance of key markets. A balance of 54% of manufacturers report positive demand conditions in Europe while, overall, just a fifth of firms (20%) are yet to see any pick up in overseas markets.

Business confidence, which took a temporary battering following the EU referendum, continues to climb and is now at a level last seen in 2015. This, coupled with the fact that firms are much busier and enjoying higher demand than they had expected, is supporting an increase in employment and investment intentions as firms strive to meet capacity requirements.

At the same time, with the crash in sterling driving higher input costs, manufacturers report that they are continuing to push through price hikes, with more still to come as they seek to alleviate pressure on margins. Domestic customers are bearing the brunt of these and this will clearly not be lost on the Bank of England, which is keeping a close eye on inflation.

With the positive and broad based trend looking set to continue into the next quarter, EEF has revised its growth forecasts upwards to 1.0% for manufacturing and 1.8% for GDP. At the same time, EEF warns that manufacturers still face short, medium and longer-term risks including, but not limited to, uncertainty from forthcoming European elections, the new Trump administration and Brexit.

Lee Hopley, Chief Economist at EEF, says: “The post-referendum wobble that defined UK manufacturing’s performance in the second half of 2016 has been left firmly behind with manufacturers now rallying far more strongly than even they had predicted. The sharp rebound in exports has been instrumental in helping firms regain ground and, with investment, employment and confidence all on the up, the picture now is of a sector not quite in peak health, but certainly making a positive contribution to UK growth this year.

“This positive trend looks set to continue in the short to mid-term, but the longer-term outlook is more unsettled. Certainty for manufacturers will be in short supply with risks potentially spinning out from the European elections, the new Trump administration and Brexit negotiations.

“It is not within the Government’s gift to shield us from the former, but it can certainly help with the latter. We would urge it to commit to a business and innovation-friendly Budget, a supportive, consistent and comprehensive Industrial Strategy and a carefully engineered Brexit that safeguards industry and trade. With these building blocks in place UK manufacturing will stand the best possible chance of maintaining its current momentum and direction of travel.”

Tom Lawton, Head of BDO Manufacturing, says: “The UK manufacturing sector again proves to be remarkably resilient with Q1 performance exceeding expectations - providing a much-needed boost for our economy.

“Increases in demand and confidence are providing the right environment for manufacturers to invest and it is promising to see investment indicators in positive territory over the last two quarters. However, businesses need stability and certainty in government policy if they are to continue to commit to significant capital investments. Therefore it is critical that the Government builds an industrial strategy over the long-term (15 to 20 years), avoiding the disruptions of the political cycle.”

The full Q1 2017 Manufacturing Outlook can be downloaded here.

-ENDS-

Contact

Jo Ganly-Hilaire
Tel 0207 654 1530
ganly@eef.org.uk

Notes to editors

Research was conducted 1st February to 22nd February 2017 amongst 389 senior decision makers in manufacturing.

About EEF

EEF, the manufacturers’ organisation, is the representative voice of UK manufacturing, with offices in London, Brussels, every English region and Wales. This year we celebrate 120 years of backing Britain’s makers.

Collectively we represent 20,000 companies of all sizes, from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector. We directly represent over 5,000 businesses who are members of EEF. Everything we do – from providing essential business support and training to championing manufacturing industry in the UK and the EU – is designed to help British manufacturers compete, innovate and grow.

From HR and employment law, health and safety to environmental and productivity improvement, our advice, expertise and influence enables businesses to remain safe, compliant and future-focused.

More information at www.eef.org.uk   

About BDO LLP

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high growth businesses that fuel the economy. 

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed. 

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 3,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has revenues of £405m and is the UK member firm of the BDO International network.

BDO’s global network

The BDO global network provides business advisory services in 158 countries, with 68,000 people working out of 1,400 offices worldwide. It has revenues of $7.6bn.