Manufacturing recovery not yet secure but North West firms buck the trend

EEF, the manufacturers’ organisation

Britain’s manufacturers are seeing a mixed picture which will delay the prospect of a return to stronger growth until the end of the year according to a survey published by EEF, the manufacturer’s organisation and business advisers BDO LLP.

However, the North West has bucked the trend with output increasing by a balance of +42%, helped by the performance of the automotive and aerospace sectors which continue to be amongst the best performing manufacturing sectors. Prospects for the next three months are also positive with a balance of +25%. Companies in the North West are also intending to hire more workers with a balance of 25%.

Across the UK, while activity levels remain largely unchanged from the second quarter, manufacturers’ confidence about future prospects for the overall UK economy have taken a knock, leading EEF to downgrade its growth forecasts for both the economy and manufacturing for this year and 2017.

In contrast, however, the export picture looks more positive off the back of the fall in Sterling and stronger demand from the EU, US and emerging markets. In fact, export orders have exceeded expectations by moving into positive territory during Q3 to +2% - the highest balance since 2014q2.

As a result of the depreciation in Sterling, manufacturers are far more positive about future export orders. A balance of +12% are expecting a boost in the next quarter with the biggest driver appearing to be demand from the EU. However, the flipside of Sterling’s depreciation has been increased pressure on profits this quarter with price increases planned for the next three months.

Looking ahead, expectations across the sector are that output and orders balances will finally move into positive territory by the end of the year. This is supporting plans for recruitment across some sectors in the next three months, but is not yet sufficient to prompt a turnaround in investment plans.

EEF’s forecasts for UK growth were revised in July, following the referendum, and growth projections for the economy this year and next remain unchanged at 1.7% and 0.8% respectively. However, forecasts for manufacturing output have been revised up to 0.4% in 2016 (from -0.3% in July) and -0.7% in 2017 (from -1.1%).