Festive cheer absent in North West as UK manufacturing’s growth prospects decline

EEF, the manufacturers’ organisation

North West manufacturers are enduring a difficult end to the year in the face of gathering gloom from the global economy, according to the latest Manufacturing Outlook survey from EEF, the manufacturers’ organisation, and DLA Piper, the global law firm.

The Q4 survey shows further deterioration in most of UK manufacturing’s key indicators confirming that, after a big step forward in growth in 2014, industry has taken a step back this year. The gloomy outlook has prompted the first negative forecast for employment and investment in almost 6 years – a trend from which manufacturers in the North West are not immune.

Output and orders are suffering in the region. Output has remained flat this quarter, but a net 10% of firms expect to see it decrease in Q1 next year. At the same time, a net 14% of firms have seen orders decline this quarter, while a balance of 7% expect this trend to continue as we head into next year.

Manufacturers’ employment intentions in the region have also taken a tumble. On balance, 21% of firms have seen employment decrease this quarter, while 24% predict a decline in Q1 2016. Investment plans for next year have also flatlined, despite a particularly buoyant outlook in Q3.

Unsurprisingly, confidence about the economy is sliding, with North West manufacturers coming mid-table compared to the rest of the UK. Confidence about their own business performance in the year ahead is looking slightly stronger however.

Across the UK, manufacturing’s concerns about world trade growth and weakening demand from both developed and emerging markets have become more pronounced. The domestic market is also looking considerably less supportive than in recent years, although some bright spots remain, in particular motor vehicles, aerospace and chemicals.

Nationally, output and orders balances fell sharply in the last quarter – the sharpest quarterly decline since Q3 2014 when the collapse in the oil price first started to impact.
The lack of growth prospects in export markets is especially marked and, after a brief improvement, manufacturers’ confidence in Europe has started to wane again.

Investment and recruitment intentions have both turned negative for the first time since Q1 2010. Employment in particular has been affected by the build- up of spare capacity in sectors supplying oil and gas, while job losses in the steel industry have impacted on prospects for the metals sector.

As a result of the weakening position, EEF has revised down its growth forecasts for this year and next. Manufacturing is forecast to contract by 0.1% this year and recover slightly to grow by 0.8% in 2016. EEF is forecasting GDP growth of 2.4% in 2015 and 2.1% in 2016.

Steve Warren, North West Region Director at EEF, says: “The prospect of manufacturing growth this year has all but faded away with another disappointing set of indicators from our survey. The downbeat mood may not be universal across all industry sectors, but in the face of mounting challenges it seems to be spreading and companies in this region are certainly not immune.

“The impact on manufacturers’ employment and investment plans suggests that these clouds will be hanging over us as we go into next year. While the Chancellor’s recent Spending Review will have been seen as supportive to industry, it is critical that Government continues to act to ensure that the UK is a competitive location for manufacturing.”

David Gray, partner in DLA Piper's Manchester office, says: “As the year draws to a close the results of the survey show that it has undoubtedly been a very challenging one for manufacturers in the North West and across the country. The contraction of the sector in 2015 appears to have been a real blow to confidence and the outlook for next year is also rather gloomy, although the North West is slightly more confident about its potential business performance in the year ahead. Let's hope that 2016 turns out to be a more stable year globally and the manufacturing sector gets a chance to recover."