Growing resilience of manufacturing sector

EEF director general Martin Temple says: “Manufacturing has posted a strong set of figures for the last year, with exports expanding strongly despite the strength of the pound. Increased investment in skills and innovation, together with vigorous efforts to cut costs, have made manufacturing much more resilient. “Whilst signs from the world economy suggest 2007 may prove to be a more difficult year, manufacturers are better placed to weather any of the storms they may face.” In the report, EEF’s analysis shows: o Manufacturing output grew by 1.8% in the first nine months of 2006 o Export balances hit an eight-year high in 2006, according to EEF's Business Trends Survey with official figures for the first nine months of 2006 pointing to growth in exports of close to 20%. This came against a background of the pound hitting a fourteen-year high against the dollar. o Productivity growth continues to outpace the rest of the economy - comparing the first six months of 2006 with the same period in 2005 gives productivity growth in manufacturing of 3.6% - double that in the economy as a whole; o According to an EEF survey a large majority of firms have increased spending on innovation in the past three years and more than half plan to do so in the next three. o R&D spending is expanding and represents just over three quarters of spending in the economy as a whole. o According to a survey earlier this year a balance of 40% of companies have increased their spending on skills and training over the last three years with a similar amount planning to do so in the next three The report illustrates that manufacturing has seen strong growth in productivity, outpacing the rest of the UK economy for the past five years, as well as every other advanced economy with the exception of the United States. Furthermore, the report also shows that manufacturing has refocused on more skilled and innovative work with the number of skilled jobs expanding despite the loss of unskilled work. Forecasts for 2007 suggest a slowing of growth. In response, EEF is challenging industry and government to create the right conditions to continue to meet tough global competition. In particular, government and industry should address the following three key issues. Firstly, only 7% of firms felt that government procurement was positive for innovation, with most regarding it as risk-averse, slow and bureaucratic. EEF is urging the government to use its annual procurement budget of £150m more effectively to stimulate innovation in the manufacturing sector. Secondly, on skills government should set out a timetable for implementing the recommendations of the Leitch Review to create a business led training system. In addition, currently, too few firms are linking their training plan to their business plan and EEF is urging a wider role for the Manufacturing Advisory Service to include skills and training within a wider remit for business improvement. Finally, government must look to address industry’s increasing costs in areas such as tax and energy. By 2008/9 business will be paying an additional annual £11.9bn in taxation than it was in 1996/7, at a time when other countries are reducing their tax burden. EEF is urging government to reduce and simplify the tax burden at the earliest opportunity. On energy, government must bring forward a white paper, which delivers on the commitments made in the Energy Review. This should include addressing the planning system to remove some of the obstacles in the way of investing in new storage and low carbon, including nuclear, power generation facilities. Government should also lead faster progress towards a liberalised energy market in Europe to ensure business has a secure and competitive supply of energy