Manufacturing orders best for nine years

Britain’s manufacturers enjoyed their best order intake for nine years in the third quarter, according to the latest survey from EEF, the manufacturers’ organisation.

However, despite being able to increase prices in some areas, the recovery in profits is being limited by a wide range of increasing cost pressures (oil, energy and raw materials) which continue to depress margins.

The survey, published by EEF in conjunction with RSM Robson Rhodes, also showed that investment levels picked up and are expected to increase further over the next year. However, investment intentions remain well below the levels seen over the 1995-1997 period. The balance of companies reporting an increase in employment also turned positive for the first time since the beginning of 1998.

For the second consecutive quarter, all sectors saw an increase in output, with growth in motor vehicles and other transport equipment especially strong. Electronics and electrical equipment reported the weakest conditions, both of which recorded strong growth in the second quarter.

All regions reported growth, with companies in the South West experiencing the best performance, largely supported by the growth in other transport equipment. The North West and Yorkshire and Humberside saw robust growth on the back of buoyant conditions in the metals sectors.

Of note was the pick up in investment levels, UK industry’s Achilles heel. EEF’s survey evidence suggests investment intentions appear firmer and investment should increase further in the coming year.

However, despite the most positive results for some time, companies are still suffering a decline in both UK and export margins. This is due to a rise in input costs, largely down to increases in the price of oil, fuel and metals. The prospective increase in electricity prices threatens to exacerbate this problem.

Despite these increases in costs, companies are more optimistic than in the previous quarter, with the balance on output rising to 27% from 21%. All sectors are expecting the upturn to continue with the strongest growth expected in the transport sectors.

Manufacturing is forecast to grow by 1.5% in 2004 and by 2.6% in 2005 with engineering expanding by 2.9% and 4.2% respectively.

The survey was conducted between 6th and 26th August, with 1201 companies responding.

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