Positive news from across the manufacturing sector
Published: 08 July, 2011
EEF’s latest report continues to bring positive news from across the manufacturing sector. The official statistics have now shown six consecutive quarters of expansion in manufacturing output and our latest Business Trends Survey points to another three months of growth in the third quarter.
The momentum behind the sector’s recovery appears to have been maintained in the first half of 2011 and the performance of manufacturing is set to continue to outpace that of the wider economy. Our recent surveys have begun to point to a gradual improvement in confidence with positive investment intentions maintained and recruitment plans translating into the first increase in manufacturing workforce jobs since 1998.
A key driver of growth remains robust demand from overseas markets. The balance of responses has been considerably higher than the long-term average for over a year as companies capitalise on strong growth in world markets. Official statistics show that emerging Asian markets and the Middle East have been significant sources of export growth over the past two years.
However the pattern of exports to Europe reflects the two-speed recovery, with demand holding up in France and Germany compared with a much less positive outlook for exports to periphery economies. While the gap between export and domestic orders balances widened further over the past three months, responses on UK orders are still elevated compared with long-term trends.
While manufacturing and its contribution to export growth remain one of the bright spots in the UK economy, challenges to growth that many companies have been navigating since the end of the recession are unlikely to recede in the coming quarters. In addition other challenges remain closer to home, in particular the ability of companies to access finance at competitive rates. For the first time since the recession ended, manufactures are reporting improving access to finance which provides a glimmer of hope the situation may be easing. Hopefully, this will translate into better news on new lending in the coming months. But availability is only part of the story and we also need to see costs coming down.
Ensuring companies have access to the finance needed to invest and grow is critical for the recovery. We need to see a sustained improvement before concluding that the actions taken by banks and government are bearing fruit and that no further measures are required.
Overall manufacturers remain optimistic about output and order books in the short term, but some downside risks have increased. For example, commodity prices are likely to be high and volatile for the time being, access to credit remains difficult or costly for some small companies and the path of the global recovery could yet hit a bump in the road. Nevertheless, 2011 has got off to a solid start and we should see above trend growth in the sector this year and next.