The 2018 Executive Survey by EEF and global insurer AIG shows that the balance of companies expecting an improvement in global conditions has reached the highest level in four years, with 42% expecting trading conditions to be better than last year, compared to 14% predicting world growth will be slower than last year.

The optimism for the global economy contrasts, however, with the outlook for the UK market with more manufacturers expecting a deterioration in the UK economic conditions for the second year running.

The confident mood amongst industry executives is reflected in improvements across all firm level indicators in the survey. The balance of companies expecting to see an increase in all the firm level indicators is positive for the first time in three years, with the responses improved in every case on a year ago.

The two organisations say that the mood is tempered, however, by the continued upward trend in the proportion of companies who see more risks than opportunities in the year ahead with half taking this view, double the number of companies who see more opportunities.

Risks related to the UK’s exit from the EU continue to dominate in 2018, with concerns about the effects of rising input costs, loss of EU staff, exchange rate volatility or a disruption in a major market continuing to cast a shadow over an otherwise buoyant outlook.

However, far from being blinkered by Brexit, manufacturers have other risks on their radar, including their exposure to cyber breaches, with over 60% saying that disruption due to a cyber-attack was on their risk radar for the year ahead.

Other risks identified include the capacity implications of subdued investment and other international ‘what ifs’, including an increase in protectionist sentiment in the US. The survey also reveals a range of actions that should help minimise the impact of these challenges, such as an increased focus on productivity, efforts to move into new geographic and sector markets, better employee engagement and action to manage cashflow.

The survey does not, however, identify major shifts in investment sentiment across UK manufacturing. Only a third of companies surveyed admit to making contingency plans for a no deal Brexit outcome and industry executives seem as likely to be considering reshoring as offshoring activity in the year ahead in response to Brexit and exchange rate risks. All this continues to leave the outlook for manufacturing investment in 2018 finely balanced.

EEF chief Stephen Phipson says: “Manufacturers left 2017 in an upbeat mood and are set to outpace the rest of the economy again this year as the growth in global trade continues to gain momentum. That is not to say everything in the 2018 garden is rosy, however, as there are plenty of factors that could puncture this positive picture.

“Chief amongst these is Brexit which has put the investment outlook on a knife edge. As such, it is essential that the Government gets a transition deal as a matter of urgency and sets out with utmost clarity as to what kind of final deal it is looking for.

“In tandem with this it also needs to crack on a pace with its Industrial Strategy. This will be vital in providing manufacturers with the confidence to invest in strategies to improve their productivity and enter new markets.”