East manufacturing continues recovery – EEF/BDO survey

MANUFACTURING in the east of England continued its strong recovery over the last three months, according to the latest survey published by EEF, the manufacturers’ organisation, and BDO LLP.

The survey shows that manufacturers in the region are continuing to enjoy good trading conditions on the back of strong demand in overseas markets, pointing to solid prospects for growth for the rest of the year.

Among east manufacturers:

  • 78% reported stable or increasing total new order volume
  • 72% maintained or increased total output
  • 74% recorded stable or stronger export markets

Greater confidence across the sector is also continuing to translate into some recruitment, albeit anecdotally this is being driven by temporary or agency working which will give employers flexibility should demand begin to slow.

Uncertainty about future demand had been dampening investment plans, but a number of sectors are now planning to increase in investment.  The positive investment intentions posted this quarter breaks the pattern of previous recessions by recovering at an earlier stage in the cycle.

However, the short-term optimism highlighted by EEF’s survey is shaded with a degree of caution about the risks to growth in 2011.  As fiscal consolidation really gets underway in the UK and others follow suit, together with the weaker outlook for the US and risks to the sustainability of Asia’s growth path, the recovery could yet falter.

Keith Hamilton, Head of External Affairs for EEF in the east of England, said, “Those regional manufacturers with overseas markets have continued to reap the rewards of continued growth in demand over the last three months – Europe in particular turned out to be stronger than expected.

“However, we have to maintain perspective that the recovery is coming from a very low base and the risks to the economy in the medium term haven’t gone away. The rebound in exports and modest improvement in investment will need to become much more firmly entrenched if we are to see a much-needed rebalancing of the economy.”

Tom Lawton, Head of Manufacturing, BDO LLP, said, “Currently manufacturing seems to be one of the UK economy’s success stories, though the spending review casts a looming shadow on all sectors. If the coalition is to effectively rebalance the economy, it must put manufacturing and its exports at the centre of economic strategy for the foreseeable future, and UK manufacturers should exploit opportunities where they can best compete – in innovation, R&D and customer service.

“We still hear stories about the difficulties of access to credit, particularly for mid sized manufacturers, so targeted funding from government is to be welcomed. But equally important are appropriate taxation, education, skills and research policies which will position the sector as a key part of the economy and provide the right framework for growth.”

Nationally, the survey was also notable for two other factors. Firstly, the
balance of companies recruiting almost doubled in the last three months to +17%, the strongest in the survey’s history.

Secondly, the investment balance turned positive to +7% for the first time since 2008q2. Compared with previous recessions, where investment balances have tended to lag behind increases in output by over a year, this is a somewhat faster recovery in capital expenditure intentions and signals that companies are becoming more confident to begin investing in plant and machinery.

Looking forward, expectations about future prospects remain positive, with a balance of 27% of companies expecting output to increase in the next three months, and 22% expecting orders to expand. Both of these balances are higher than the previous quarter’s figures suggesting there is confidence that the recovery will continue into the next quarter at least.

EEF also published its latest forecasts for the UK economy and manufacturing. These show the economy growing by 1.5% and 2.1% in 2010 and 2011 respectively whilst manufacturing will grow by 3.7% in 2010 before easing back slightly to 3.2% in 2011.