Manufacturing expansion eases but on track for growth

However, the EEF/BDO Q3 Manufacturing Outlook survey has revealed a continued positive picture with continued confidence being translated into on-going plans to invest in modern machinery and recruit skilled employees. In particular, investment intentions have now been positive for 17 consecutive quarters. Nonetheless, EEF warned that the demand picture was now more uncertain than for some time, with the Eurozone economy flagging, political risks increasing and a stronger sterling exchange rate. This more difficult overseas picture was, it said, reflected in export orders turning negative for the first time since the start of 2013. EEF chief economist Lee Hopley explained: "Manufacturers are still on course for a strong year of output growth in 2014, but our survey points to a moderation in the pace of expansion from the take-off seen in activity over the past year. We're also seeing manufacturers continue to recruit for skilled jobs and increase their plans to invest in the coming year – exactly what the UK economy still needs for balanced growth." She added: "However, there are clearly increasing downside risks overseas which could make sustaining strong growth and particularly stronger exports more challenging going forward. In the face of this, while UK politicians may be focused on next year's election it is critical that efforts over the rest of this parliament remain focused on sustaining growth across manufacturing and the economy." The survey showed that output and order balances remained positive in the first quarter, with output and new orders both at +10%. However, output was down from +26% in Q2 while the figure for new orders compared with an average balance of +21% over the past year. Forward-looking output balances were pared back to +22% from +34%, but were still well above the series long-term average while there is similar confidence in the orders outlook with a balance of +20% (down from +32%) of companies planning for increased sales in the next three months. The domestic market continued to be a source of strength "although the balance of +3% was markedly weaker than the previous four surveys (+16% in Q2) and well below firms expectations", said EEF. "However," it added, "in the face of increased political instability, some impact from a stronger sterling and subdued global growth and world trade export orders turned negative for the first time since Q1 2013 at -4%, down from +9% in Q2 and +16% in Q1."