The UK manufacturing sector is on track to post the strongest growth in a sixth-month period since 1994, according to recently released statistics.
An economic report compiled by manufacturer’s organisation EEF and accountancy services firm BDO has stated that with the exception of wood and textiles, the manufacturing sector grew by 1.4 per cent in the first quarter of the year and 1.6 per cent in the second.
However, the report is quick to point out that the positive trends will have to contribute for some time to reverse the decline during the recession. Manufacturing output remains more than 10 per cent below its pre-recession peak.
Manufacturing output will likely ease through the second half of the year and remain stable throughout 2011
Lee Hopley, chief economist for EEF, said growth could continue throughout the rest of the year if net trade picks up, as it has yet to make a positive contribution. On the other hand, she said, manufacturing exports have been adding to growth and have risen faster in the first half of the year than what was previously expected.
According to EEF’s latest Business Trends survey, export orders turned positive at the beginning of 2010 and a positive balance of 23 per cent of companies saw an increase in export sales in the second quarter of the year – the highest ever recorded balance.
The increase in exports has likely been boosted by weaker sterling and a recovery in global demand.
EEF and BDO highlight a degree of caution among manufacturers about the strength of the recovery, warning that while order books may be starting to fill up, anecdotal evidence suggests that volumes are relatively low. In addition, credit conditions also remain largely unchanged from the beginning of the year and problems with access and cost of finance could constrain some manufacturers.
Hopley said manufacturing output will likely ease through the second half of the year and remain stable throughout 2011.
‘I don’t think you’re necessarily going to see more quarters of growth at that second-quarter magnitude,’ she said. ‘If you look historically at coming out of previous recessions in the 1980s and 90s you do see a very uneven quarterly growth profile. You’ve got good growth one quarter and it slips back a bit for another. It’s not to say our central forecast is a double dip. That’s an unlikely prospect, but this uneven growth is not unusual coming out of recession of the depth we just had.’
When focused specifically on small and medium-sized manufacturers, the findings remain largely the same as the entire sector.
Of the 403 small and medium-sized manufacturers that responded to the quarterly SME Trends Survey conducted by the business group CBI, 41 per cent said output rose in the three months to July, while 20 per cent said it fell. The resulting balance of positive 21 per cent growth is the fastest since April 1995, according to the CBI, and a three per cent improvement on the previous quarter.
The survey found the rise in output was driven by strengthening demand at home and abroad. Approximately 37 per cent of firms saw the volume of total new orders increase during the quarter, while 24 per cent saw a decline, giving a positive balance of 13 per cent. The CBI says this is the fastest growth since July 1995.
Additionally, exports had a particularly strong showing, according to the CBI survey, with a positive balance of 22 per cent of firms reporting a rise in the volume of overseas orders, the fastest growth since April 1995. Meanwhile, domestic orders saw a more modest six per cent growth.
Looking ahead to the next three months, the CBI survey indicated that smaller and medium-sized firms anticipate a slight fall in output, around five per cent, as the trends in domestic and export orders are expected to weaken, by a balance of negative five and three per cent respectively. As a result, total orders are also expected to fall by four per cent.