Strong manufacturing performance continues

Published:  01 February, 2011

A continued strong performance from the UK’s manufacturing sector spurred on by solid growth in export orders, particularly to emerging markets, is set to lead the continuing economic recovery in 2011, according to a major report published in January.

The report, ‘Economic Prospects 2011’ published by EEF, the manufacturers’ organisation also shows growth for the economy is set to be better balanced as investment and net trade finally start making sustained positive contributions.

However, the report also warns that there are some significant challenges to watch for this year that not only shape EEF’s central forecast, but also suggest some caution. These include a separate survey, which shows potential direct impacts on manufacturers as sharp government spending reductions start to bite.

Last year the sector outpaced expectations and the overall economy by expanding 3.8%. This year, another strong result is forecast with 3.5% growth for manufacturing compared to a solid if unspectacular 2.1% growth for the economy as a whole. In 2012 growth is forecast at 3% and 2.6% respectively.

This balanced growth is broadly based across all sectors with the top performers forecast to include mechanical engineering and metal products, which benefit from having high exposure to export markets where demand is likely to be strongest.

Commenting, EEF chief economist Ms Lee Hopley, said: “At the start of 2010, shell-shocked from the worst recession in 80 years, forecasters across the country were wary of predicting anything more than very modest growth. But manufacturing picked up the baton and delivered its best performance in sixteen years.

“Manufacturing now looks set to be at the heart of the rebalanced growth the economy needs with sectors most exposed to international markets likely to post the highest growth.”

“But there are continuing risks to growth both here and abroad. To maintain momentum the government must keep its foot down on policies to accelerate growth. The fact that the UK is now on the road to recovery will not necessarily make the job easier and the forthcoming Budget will offer the first major point in the year when this resolve to clear away obstacles to growth must be demonstrated.”

While the overall picture is optimistic the reports highlights continuing risks at home and abroad, especially the continuing threat of high inflation, which has continued to be higher than forecast. EEF is forecasting that with the January VAT rise the Bank of England’s 2% inflation target will be exceeded for the whole of this year.

The report highlights four risks to watch in 2011

Government spending cuts

Eurozone crisis:

Access to finance

Commodity price rises

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