UK manufacturers to top EU growth league in 2014

Darrell Matthews

Britain’s manufacturers are expecting an improved outlook in 2014 which should lead to growth in exports to emerging markets and a turnaround in investment, according to a major survey of senior executives published today by EEF, the manufacturers’ organisation and Aldermore Bank.

The survey of 200 senior executives paints a more positive outlook than the very muted picture of twelve months ago, with growth expected in all markets and across all sectors and sizes of companies. The relentless pursuit of growth opportunities in new markets, sectors and technologies looks set to be more focused for firms in 2014, but they are far from certain that risks to growth won’t return this year.

The survey shows that the efforts necessary to remain competitive and grow in an uncertain world will continue in the year ahead. Topping the list of strategies for manufacturers in the year ahead are actions to improve productivity, greater supply chain collaboration, strong communication with employees and increased overseas marketing efforts. All of which will support growth plans and help to mitigate any emerging risks.

These actions will be coupled with much-needed investment in new capacity in the UK. Two fifths of companies said they plan to invest moderately in the UK, with a further fifth saying their investment would be significant. Overseas, one third of large firms plan to invest compared to a fifth of SMEs.

Flexibility and a focus on growth tee industry up for a strong 2014 performance, with our forecasts indicating output expansion of 2.7%. As ever, if the investment pick up is further delayed there will be consequences for both supply chain capacity and growth across the wider economy; a downside scenario that policy makers must not lose sight of in the year ahead.

Commenting, Darrell Matthews, North West Region Director of EEF, the manufacturers’ organisation, said: “Manufacturers are telling us they expect to make a greater contribution to growth, investment and jobs this year. Innovation, energy and diversifying into new supply chain remain key opportunities but the UK and the eurozone are also looking better. However, global uncertainty and rising energy costs pose significant risks and, the challenge for industry and government this year will be to get industry’s investment plans over the line.“

Mark Stephens, Deputy CEO and Group Commercial Director at Aldermore, said: “This report from EEF is both welcome and timely. 2013 has seen a growing sense of cautious optimism emerging amidst signs of a slowly improving economy. This is particularly good news for smaller firms, and vital within the manufacturing sector.

“At Aldermore we work closely with manufacturing clients across the country and are seeing first-hand what the findings of this report suggests. Clients are certainly more positive about the future of their businesses than this time 12 months ago, with a determination to capitalise on an improving UK market and to secure more business in new export markets.”

According to the survey 70% of companies expect the UK economy to improve in the next year, with a similar number (62%) expecting manufacturing prospects to improve. This is mirrored in the outlook for the global economy where 57% of companies expect an improvement. However, the perception of global risk is highlighted by the fact just 3% of companies expect this improvement to be significant.

This improvement is being driven both at home and abroad with two thirds of companies expecting their domestic sales to increase and, 55% of companies expecting their exports to increase, with almost 10% expecting this to be significant.

The Middle East has seen the largest increase in prospects with over half of companies involved there (40% in 2013). Regarding the eurozone, the balance of companies expecting growth rather than contraction has improved from -5% to +28%. Asia continues to offer UK firms robust prospects with the largest proportion across all markets, 12%, expecting significant growth.

The extent of the importance of emerging markets is underlined by the fact increased demand from these areas has returned with two fifths of companies viewing this as the best source of growth. Companies in the transport sectors were most positive about emerging market demand reflecting the prospects for goods such as luxury vehicles and civil aircraft where the UK is well placed.

However, despite this positive picture, the impact of the prolonged downturn on manufacturers is highlighted by the fact three quarters believing ‘economic uncertainty is the new norm’. A range of specific risks were also identified with rising input costs being the largest (61%) of whom a third said it was their most significant. This reflects the impact of rising energy costs in particular although pay pressures, a factor not seen for many years, were also identified as a risk by a quarter of companies.

Almost the same number reported ‘insufficient supply chain capacity’ as a risk, reflecting the hollowing out of the UK supply base and the need to build it back again, a key factor in encouraging inward investment in sectors such as automotive and aerospace. However, half of companies said they planned to work more closely with their suppliers in order to address this risk.