Britain’s manufacturers experienced their strongest growth in seven years in the first quarter of this year according to one of the UK’s leading business trends surveys, with growth expected to strengthen further through this year and into 2005.
However, the Q1 Engineering Outlook survey, published by EEF, the manufacturers’ organisation and RSM Robson Rhodes also showed whilst demand is increasing, the competitive pressures on manufacturing show no signs of abating with downward pressure on margins increasing. The pressure on margins is of particular concern given the likely knock on effects on investment.
Commenting on the survey, EEF Director General, Martin Temple, said: ‘The long downturn in business investment may have come to an end but, at this stage in the manufacturing cycle, investment is still conspicuous by its absence. If manufacturers are to make the productivity improvements necessary to reap the full rewards of the upturn in global demand it must be underpinned by a significant upturn in investment.’
The engineering sector is forecast to grow 3.4% in 2004 and 4% in 2005. Manufacturing, on the other hand, is forecast to grow 2.4% and 2.6%, respectively.
The stronger growth prospects are being driven from abroad, especially the US and Asia, although the balance on domestic orders also turned positive for the first time since Q4 1999. Given the strength of growth in dollar dominated markets, EEF remains concerned, however, that higher interest rates in the UK will only help to prop up a strong pound against the dollar and damage prospects for exporters.
By sector, the best performers were electronics, electrical equipment, other transport equipment and motor vehicles. Such is the strength of growth in electronics, which has helped the South and Scotland outperform the rest of the UK, EEF believes that the sector could begin to make up some of the huge losses experienced in recent years. However, both basic metals and metal products saw output and orders decline which have impacted on the performance of regions such as the North East and Yorkshire and Humberside.
Given the sharp decline in manufacturing investment since 1998, an issue the EEF has consistently highlighted as damaging to productivity, the balances on investment plans indicate that the long downturn in business investment may have come to an end. In addition, job losses slowed in all sectors except metals, whilst electronics and both the South East and South West reported an increase in recruitment for the first time since 2000.
EEF also revised upwards its growth forecasts for 2004 and 2005. Engineering is set to grow by 3.6% and 4% and manufacturing by 2.4% and 2.6%, respectively.
The survey itself was conducted between February 2 and February 20, with 1192 companies responding.