UK manufacturing confidence highest for a decade

Source: Supply Chain Digital

Date :03/09/2007 09:03:47

Britain’s manufacturers are continuing to enjoy healthy growth according to a leading survey of the sector published today.

According to the third quarter survey by EEF, the manufacturers’ organisation and financial adviser Grant Thornton, activity strengthened in the latest three months with both export and domestic order books improving and all regions and industries seeing positive conditions. The survey showed the highest output and order balances since the first quarter of 1995. In addition, there was a significant increase in investment intentions and a further rise in the number of companies recruiting or planning to do so.

The survey also showed that growth in manufacturing has become more balanced with domestic orders overtaking export orders for the first time since Q4 2002. This improvement in domestic orders could prove timely, given the potential for turbulence in financial markets to weaken growth in key export markets. EEF also cautioned that, despite upward revisions to its growth forecasts the current financial turmoil may add a degree of uncertainty to business conditions for the rest of this year and into 2008.

Key findings were:

• Strong activity continued in the third quarter

• Domestic orders outweighing export orders

• Strengthening in investment intentions and employment

• Optimism increases for the coming quarter

• Growth forecasts revised upwards for 2007 and 2008

Commenting, EEF Chief Economist, Steve Radley, said: “Manufacturers are now enjoying a sustained period of growth and reaping the rewards of increasing their investment in skills and innovation. Long gone are the days when a strong currency and increases in interest rates would have stopped companies in their tracks.

“However, despite the UK economy providing a welcome boost, the current turbulence in the financial markets and a more significant slowdown in the US could weaken the outlook.”

The output and total order balances both increased to +30 percent (up from +23 percent and +19 percent in Q2) and both have now been in double digit territory for seven quarters in a row. Domestic orders increased from +8 percent to +17 percent on the back of a strong UK economy and, whilst export orders also increased (+12 percent from +10 percent) the relative weakness suggests a possible effect of a slowdown in the US.

All sectors experienced robust activity with all but the two metals sectors showing improved output balances. Motor vehicles recorded the best balance at 42 percent indicating that that its recovery is gathering pace as expected. Other transport and mechanical equipment continued their positive picture, recording ten and fourteen consecutive positive quarters respectively.

The improved picture was also translated into a positive outlook for employment. All sizes of company saw increases in hiring intentions, with the overall balance increasing from +4 percent to +9 percent. Larger companies over 200 employees were the most likely to recruit and firms operating in the other transport and electrical equipment sectors most likely to report increased headcount.

Healthy order books are also underpinning investment intentions with the planned increase improving from +11 to +28 percent. This continues the trend that began at the start of 2006, with intentions widespread and no sector reporting a balance below +20 percent.

Looking forward, companies expect the robust conditions to continue in the final three months of the year though this may be offset by any more difficult conditions in the US. The balances on companies expecting output to increase in Q4 are 35 percent with mechanical engineering, electronics and electrical equipment most upbeat, each recording +44 percent.

Bob Hale, Head of Grant Thornton's Manufacturing and Technology Group, said:

"The growing focus on high quality, value added products across the spectrum of UK manufacturing is continuing to pay dividends, with manufacturers becoming increasingly successful at developing niche areas. This is reflected in the resilience and optimism of the sector despite the challenge of rising interest rates."

"With order books remaining strong, manufacturers are optimistic about the rest of the year in regard to investment in capital and people, but interest rate stability would certainly help counteract the possible effects of recent market turbulence on the sector in the UK."