Impact of oil price fall leads to a less than upbeat start to 2015 for North West manufacturers

Darrell Matthews, EEF North West Region Director

The impact of the fall in oil price has meant that North West manufacturers got off to a less than upbeat start to 2015, with output, orders and employment all heading in the wrong direction, according to a major survey published today by EEF, the manufacturers’ organisation and global law firm DLA Piper.

The findings show that the economic environment has been somewhat turbulent, with a net 6% of the region’s manufacturers reporting a decline in output, matched by those reporting the same on orders. Employment also took a hit with a net 12% seeing a drop in numbers.

The sharp fall in the oil price – hailed as a boon for consumers, but a negative for manufacturers in the oil and gas supply chain – looks to be the culprit. It highlights the more challenging domestic demand environment faced by those with a high exposure to delayed or cancelled investments in the North Sea.

Despite this, manufacturers in the North West are feeling more buoyant about the coming quarter – with a net 27% expecting output to move back into positive territory. And the good news doesn’t end there – manufacturers are predicting an impressive turnaround on orders with a net 38% expecting to see an increase in the next three months of the year. At the same time, a net 12% expect to be on the recruitment trail, providing a boost to local employment.

Looking ahead at the rest of the year, despite the headwinds caused by the drop in the price of oil, the region’s manufacturers are still confident. Unsurprisingly however, they are less confident than their peers in other regions, such as the West Midlands and the South West, who have largely escaped the oil price fallout.

Nationally, EEF is continuing to forecast healthy growth at 1.7% this year, revised down slightly from 2% last quarter. GDP is expected to increase by 2.8% in 2015, a slight upward revision from 2.6% last quarter.

Other key findings across the UK are:

• Output and orders are positive and in line with expectations
• Domestic demand dips, but there are signs that export growth has returned
• Manufacturers are confident for prospects and UK economy in year ahead
• Recruitment and investment intentions remain strong.

Darrell Matthews, North West Region Director at EEF, says: “Nationally any concerns that manufacturing activity might wobble at the start of 2015 have been quashed, but here in the North West it’s been a less upbeat story. These findings show that it’s not been plain sailing and the drop in the oil price has fed through to weaker demand in the oil and gas supply chain, which is significant in this region.

“This had an impact on orders, output and employment in the first quarter – the only indicator to stand up was investment. However, we look to be turning a corner with all of these areas set to move back into positive territory in the quarter ahead. While confidence levels overall are holding firm, policies to sustain positive investment plans, encourage exporters and improve access to skills remain the order of the day.”

David Gray, partner in DLA Piper's Manchester office, says: "Despite the impact of the fall in oil price, the sector in the North West retains an expectation that it will be able to pursue export growth as part of its plans for investment. This reflects the support that we are providing to the manufacturing industry locally, utilising our extensive global coverage.

“Growth in new export orders alongside a generally positive outlook for the British manufacturing sector will lead to a need to recruit and invest. It will be interesting to see what impact the result of the UK general election has on the outlook for North West manufacturers in the next quarterly EEF/DLA Piper survey."