The latest Bibby Financial Services Business Factors Index suggests that manufacturing is now the UK’s leading sector, with levels of output stabilising over the last quarter.
Index levels for the sector are said to have peaked at ‘unusually high’ levels in March and, despite the fall in productivity over the last three months, the performance of the manufacturing industry is still strong and remains consistent.
Specifically, the index for the manufacturing sector shows that optimism is the highest of all the sectors, with 24 per cent of small manufacturing firms stating that business is buoyant.
Additionally, 15 per cent of small firms feel that their business is stable and remain optimistic. This was a majority response for 59 per cent of larger manufacturing firms.
However, 36 per cent of smaller firms feel conditions remain tough and are struggling to survive.
Concerns expressed by some smaller manufacturing firms are mirrored in a recent report commissioned by Deloitte and US Council of Competitiveness, which suggests that the competitiveness of UK manufacturing is set to struggle over the next five years against its global counterparts.
The report cited that the UK would fall three places over the next five years, from 17th to 20th in the Global Manufacturing Competitiveness Index.
Businesses in the sector are experiencing mixed fortunes as the British Chamber of Commerce (BCC) recently reported increases in domestic orders and sales.
Edward Rimmer, UK chief executive at Bibby Financial Services, said: ‘The latest index suggests that the manufacturing sector is enjoying a relatively stable period, in which many companies are enjoying productive spells of output.
‘However, the British Chamber of Commerce recently warned of the likely price increases in manufacturing supply chains − a result of the rise in costs of purchasing raw materials. In addition to this, the weakness of the Euro means that many exporters, who had before relied on the poor exchange rate of the pound, will find it harder to drive global sales.
‘It is therefore increasingly important that the manufacturing industry is supported, as the sector is crucial to the driving the UK’s economy forward.’
In separate news, Deloitte reported on July 20 that administrations in the UK manufacturing sector have dropped 46 per cent for the first half of the year compared with 2009.
Six months ago, Deloitte’s annual administration figures for 2009 indicated that manufacturing was the second hardest-hit sector of the economy, representing 17 per cent of total administrations for the year.
Ross James, manufacturing partner at Deloitte, said: ‘The manufacturing sector is certainly in a better position than it was a year ago, however demand has not increased to the level required to give the sector the boost it needs.
‘While we are seeing order books pick up, businesses have tightened up operationally and are running with a lower level of working capital, so the significant ’restocking effect’ that was hoped for has not happened.
‘Corporate investment in capital expenditure also remains tight. While there are certainly a number of issues at play affecting UK manufacturing, end demand and business investment are the primary drivers and, until there is a significant and sustainable increase in demand, the outlook for the sector will continue to be uncertain.’