UK manufacturing looks up

UK manufacturers are making the most of a strong global economy, with exports, investment and employment all expanding, according to a key industry survey.



Prospects for Britain’s manufacturers have continued where they left off in the first quarter of 2006, with more companies increasing output in the second quarter than at any time in the last ten years.



The second quarter 2006 engineering outlook survey, carried out by EEF, the manufacturers’ organisation, and RSM Robson Rhodes, suggests that the strong growth across the global economy, including the recent pick-up in Europe, is the main driver of growth for UK companies.



Confidence about the next three months is also holding up, having been the highest for eight years last quarter. This brighter outlook is one factor spurring planned increases in investment, as is the need to focus on raising productivity to counter rising costs. However, companies are less sure about the domestic market, suggesting that the Bank of England should continue to hold off any increase in base rates.



The survey also showed that more companies reported increases in employment rather than job cuts in the last quarter and that employment prospects turned positive for the first time in a year.



Commenting on the survey, EEF Chief Economist, Steve Radley, said, “Our survey shows that manufacturers are making the most of a strong global economy, with exports, investment and employment all expanding. However, the domestic market remains subdued, suggesting that the MPC should hold off from raising interest rates.”



Growth forecasts to the fourth quarter of 2006 in engineering and manufacturing have been revised up to 3.8% and 1.8% respectively. For the first time in almost two years all sectors saw widespread growth, although there were wide variations in the pace, with the higher value sectors such as electronics and electrical equipment seeing the strongest levels.



The regional picture was also more balanced, although the South West and Scotland continue to be the two best performers on the back of growth in electronics and other transport equipment.



All regions remained optimistic about the next three months, although as with the national picture this is being driven more by exports than UK-based customers.



Investment plans have also held up although the levels are below those seen in the late 1990s when investment was growing strongly. These plans should be helped by a slight easing of pressures on margins which have improved across most sectors.



Bob Hale, chairman of RSM Robson Rhodes’ National Manufacturing and Technology Group, said, “With upturns in output and orders continuing, and a combination of positive growth forecasts and investment intentions; the outlook is far more optimistic.



However, the continuing increase in commodity prices and energy costs, coupled with the inability to pass on the full extent of these cost increases, means that margins continue to remain under pressure.”