Manufacturers upbeat as recovery begins

A BOOST to output and orders has been welcomed by manufacturers in the East Midlands as the delayed recovery finally arrived in the final quarter of 2016.

That’s according to a survey released today by EEF, the manufacturers’ organisation and accountants and business advisory firm BDO.

Publishing the Q4 Manufacturing Outlook survey and revised economic forecasts, EEF pointed to early signs that the sector has left behind the negative effects of the low oil price and concerns about global growth and is now seeing opportunities from a resilient UK market and brightening export prospects.

However, EEF stressed that the picture is one of the sector regaining ground after a sluggish 18 months. While key indicators moving back into the black is a positive development, risks remain on the horizon, some Brexit related and others potentially stemming from elsewhere in the world. As a result, despite the improvement in conditions, EEF is still forecasting that manufacturing will contract in 2017.

EEF also pointed to inflationary pressures building and significant price rises in the pipeline, a factor likely to weigh down on domestic activity in the year ahead. Profit margins are also under considerable pressure and are likely to be squeezed further in 2017.According to the survey output in the East Midlands in the last 3 months increased by a balance of +45%, the highest of any UK region, with a strong forecast for the next 3 months.

New orders for the next three months are also strong at +18% whilst, in line with this better picture, investment intentions in the East Midlands are the highest of any UK region at +29%. In line with this positive picture more companies recruited in the last three months than any other UK region whilst prospects remain strong going into 2017. Investment intentions for the next 12 months are also the best of any UK region.

Charlotte Horobin, interim EEF region director in the East Midlands, said: “This is the most upbeat reading on the state of manufacturing we’ve seen for some 18 months and signals the start of brightening conditions for manufacturing, which had been briefly knocked off course following the referendum. This anticipated turnaround can be attributed to a range of factors including the resilience, thus far, of the UK economy but also the strengthening of demand in a number of major markets. Critically, this should spur some new investment and recruitment activity to meeting fulfil new customer demands.

“While confidence is back on the up, manufacturers are still cognisant of growth challenges in the near term. Brexit aside, global growth is not yet on the firmest of footings and, with volatile exchange rates also in the mix, UK manufacturers will need to continue to be nimble in their responses to emerging challenges and opportunities in the months ahead.”

Tom Lawton, partner and head of manufacturing at BDO, added: “Despite uncertainty at home and abroad, UK manufacturing is proving to be resilient. It is promising to see that five months on from the referendum, manufacturers in the region are reporting increases in both output and orders. The depreciation of Sterling is helping manufacturers export more and they are seeing a steady increase in appetite from the EU and US. However, this is putting additional pressure on the cost of raw materials being imported and therefore profit margins for manufacturers, which will ultimately push up prices.

“Brexit means a period of challenge and vulnerability for the sector and businesses need stability and certainty in government policy if they are to continue to commit to the investment that the country needs to grow.”