While the media have been busy painting a bleak picture of the UK’s economic prospects, given the uncertainty surrounding Brexit, the nation’s manufacturers have ploughed on regardless – and produced a performance that confounds the naysayers. At Dymond Engineering we’ve certainly been busy producing a variety of custom metal products including desks, shelves, game bird feeders, retail display equipment and metal component parts, but it’s obvious that others have also been hard at work. In this post we bring you up to speed with the buoyant state of Britain’s manufacturing sector.
Order books are a key indicator of the health of the UK manufacturing industry and in the three months to November the CBI reported that total orders were running at a level not seen since 1988. At the same time export order books were at the joint highest for more than 20 years.
Anna Leach, the CBI’s head of economic intelligence, commented that: “UK manufacturers are once more performing strongly as global growth and the lower level of sterling continue to support demand.”
Overall sentiment among manufacturers is, not surprisingly, running high. Predictions are that output will continue its upward trajectory and expand further in the three months to February, albeit at a more moderate pace.
The food & drink sector accounted for some of the most dramatic improvements in the order books, along with chemicals. Exports of electronics and transport goods also showed a rise. Around one in five companies included in the survey expect prices to increase over the coming three months, with only two per cent anticipating a decline. This was somewhat higher than the long-run average, but was in line with the level of expectation for price inflation from the previous quarter. Stock levels of finished goods fell below the average long-run rate, with only 12 per cent saying they had more than adequate stock.
Another survey, The Purchasing Managers’ Index compiled by IHS/Markit, showed UK manufacturing activity grew at its fastest pace in more than four years in November – it hit 58.2 in November, the best level in 51 months.
The compilers of this closely watched report said the results indicated UK manufacturing had “shifted up a gear” last month. 58.2 level suggests strong growth as any reading above 50 indicates expansion.
“The domestic market remained strong but new export orders primarily from the US and Europe were a big part of this overall picture of success,” said Duncan Brock, who contributed to the report.
EEF, the manufacturers’ organisation, in conjunction with business advisory firm BDO, recently published their manufacturing outlook survey for the final quarter of 2017. This is also very upbeat, showing positive balances across all their main output and orders indicators across all four quarters in 2017.
According to the EEF/BDO Manufacturing Outlook Q4 survey, manufacturers are continuing to ignore the ongoing political uncertainty at home as improved global demand, from European markets in particular, and the increase in commodity prices is feeding growth across the manufacturing supply chain. This is compensating for weaker UK demand as the squeeze on living standards and Brexit uncertainty continues to take its toll domestically.
This strong performance, across all sectors and regions, has led EEF to upgrade growth forecasts for manufacturing for this year and next, meaning the sector will outperform the economy overall. Furthermore, the positive conditions in the fourth quarter mean that 2017 will be the first since the financial crisis when both output and order balances have been positive in every quarter throughout the year.
The bounce in business conditions seen over the course of this year is driving the need for investment in more capacity to fulfil increasing customer demands. This has led to the second successive improvement in investment intentions, with the balance of companies planning more capital expenditure hitting a three and a half year high.
Lee Hopley, EEF chief economist, said: “Stronger global growth has cemented the foundations for growth in manufacturing this year, but the sector’s contribution to the UK economy has been greater than most expected. Not only have we seen consistently positive survey responses in each quarter this year, but growth has been evident across all industry segments and UK regions in 2017.”
Tom Lawton, partner and head of BDO Manufacturing, added that: “Manufacturers have continued their strong performance into the final quarter of 2017, ending the year with plenty of festive cheer. The sector’s performance is being driven by increasing demand from around the world, in particular Europe. The task of government is very clear: it needs to deliver a Brexit that minimises disruption to manufacturers – they are the economic engine of the UK economy.
Here are nine headline facts in the EEF/BDO survey worth noting:
34% – the balance of manufacturers reporting increased output in the past three months
This level is unchanged from the previous quarter and better than survey respondents had anticipated three months ago. This marks a substantial turnaround from industry’s performance a year ago, when the average output balance across the year was -3%. Positive output responses were also broad-based across the sectors covered by our survey – a trend that has again been consistent throughout 2017.
21 percentage points – the gap between exports and UK orders balances
Global manufacturing activity as a whole has been on the rebound and this partly explains why an increasing number of manufacturers have recorded rising sales this year – particularly to overseas customers. 33% of manufacturers saw another quarter of increasing sales to export customers, unchanged from last quarter, but increasing the lead over UK sales.
3.6% – global growth forecast in 2017
With eurozone growth turning a corner this year, together with resilience in the US, an acceleration in growth in China and a return to growth in commodity exporting countries, organisations such as the IMF have been more optimistic about prospects. The EEF shares that optimism and expect global growth of 3.6% this year.
81% – proportion of companies identifying at least one export market supporting growth
The survey shows that over four-fifths of manufacturers have seen improving demand conditions in at least one major export market in the past three months.
Europe has consistently been the stand-out export market, with around 60% of survey respondents noting good demand from European customers in each quarter this year.
10 years – the last time output and all orders balances were positive
The survey has tracked the domestic and international ups and downs experienced my manufacturers since the financial crisis. The clean sweep of positive responses across all the output and order (total, UK and export) indicators this year is a rarity and one not seen since 2007.
Five consecutive quarters – the recent run of positive price balances
The Manufacturing Outlook survey has reported five consecutive quarters of positive balances on UK and export prices. The move into positive territory was initially a response to the rising input cost pressure which started to build after sterling collapsed last summer. However, a new round of pressures is emerging as oil and other commodity prices stage a recovery, and these are passed on to customers as manufacturers seek to protect margins.
20% – the balance of companies planning to increase investment
The market upturn in demand prospects is, inevitably, creating some capacity challenges. There has been some caution in investment plans, in part a consequence of uncertainty following the EU referendum. However, more manufacturers are now pushing ahead with additional capital expenditure to meet current customer requirements. The investment intentions balance hit 20% – the highest level in more than three years, with all sectors positive about their investment plans in the next 12 months.
11 quarters – the last time the business confidence indicator was higher
Given the positive outlook for sales, rising production levels and stronger global prospects, it is unsurprising that confidence levels have strengthened further. Looking to the next 12 months, confidence edged to a score of 6.7 out of 10; the highest level seen since the beginning of 2015 and a massive increase on the 5.3 score recorded immediately after the referendum.
2.1% – growth expectations for manufacturing this year
Following a very strong outturn for production growth in official statistics for 2017q3, the EEF predicts output will expand by 2.1% this year and 1.4% in 2018. This would make 2017 the strongest year of growth since 2014 and in both years that would see manufacturing growing faster than the whole economy – their forecasts for which are unchanged at 1.5% and 1.3% in 2017 and 2018 respectively.
So, British manufacturers have put in an excellent performance and the indications are that this successful run will continue for some time. We’re certainly optimistic about 2018 and anticipate continued strong demand for our high-quality light-weight metal products including components, office furniture, bespoke metal shopfittings and game bird feeders. If you have a requirement in any of these areas don’t hesitate to get in touch – we’d be delighted to share our value engineering experience with you and give you a highly competitive quote.