According to the Manufacturing Outlook Q4 survey by EEF and accountancy and business advisory firm BDO LLP, manufacturers are continuing to ignore ongoing political uncertainty as improved global demand and an increase in commodity prices is feeding growth across the manufacturing supply chain.
They say that this is compensating for weaker UK demand as the squeeze on living standards and Brexit uncertainty continues to take its toll domestically.
The strong performance 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 Q4 means 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.
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.
“There is some confidence that this momentum will carry into 2018, but as we head towards the Brexit end game we need manufacturing to produce the same trick of broad based growth again next year. As we see more companies investing and capitalising on global growth, we’ve become more upbeat in our forecasts for the growth outlook. Government’s industrial strategy is now out of the starting blocks but it needs to maintain a steady pace on delivery of its policy commitments to anchor manufacturers’ growth and investment in the year ahead.”
Key findings:
- Both output and total orders remained in very positive territory at +34% (+34% in Q3) and +30% (37% in Q3) respectively.
- The continued growth in world trade and weakness in the UK market has meant that the gap between export and domestic orders has continued to widen due to rising inflation, slowing consumption growth and Brexit uncertainty.
- Export orders remained at the same level as in Q3 at +33% whilst domestic orders continued to soften, easing back to +12% from +22% in Q3.
- Longer-term confidence amongst manufacturers about their own firm-level fortunes continued to edge higher this quarter with growing pressure on capacity leading manufacturers to increase investment for the second quarter running, with the capital expenditure plans balance hitting its high level since 2014q2 at +20% (+15% in Q3). This is being accompanied by continued robust recruitment plans across the sector, +22% in in Q4 compared to +25% in Q3.
- EEF has upgraded its forecasts for the sector to +2.1% and 1.4% respectively. This is faster than the UK economy overall where, in line with the OBR forecasts at the Budget, EEF expected tepid UK growth of 1.5% in 2017 and 1.3% in 2018.
