British industry continues to crawl along the road to recovery with output and orders still sliding and investment at its lowest level since the financial crisis, according to an industry report.
The EEF’s latest manufacturing survey found that the 23 June EU referendum, which has been holding back other sectors of the economy, notably construction, is just one factor among many uncertainties.
The manufacturers’ organisation also pointed to the difficult global economy, cutbacks in oil and gas investment and the steel crisis. Investment is the lowest since 2009.
But there are signs that the downturn has bottomed out, with firms growing more confident about the coming months. That could lead to a recovery in the second half of this year, the EEF believes, if the UK chooses to remain in the EU and “other factors holding back growth continue to wane”.
The poll of 346 companies showed that output and orders fell in the past three months, for the fourth quarter running.
Both balances improved, albeit not as much as expected, to -4% from -5% for output and to -2% from -8% for total orders in the second quarter, bolstering hopes that manufacturing could move into positive territory in the second half of the year. Some sectors have fared better than the rest, such as chemicals, pharmaceuticals and transport, which are still growing.
The UK and export order balances improved to -8% and -4% respectively. Europe remained the market where most manufacturers reported positive demand, followed by North America and the Middle East.
Businesses are now planning to hire for the first time in three quarters, although this is concentrated in a few sectors. The bright spots were the food and drink industries – which, the EEF said, are benefiting from an easing in the supermarket price war – along with the chemicals and electrical equipment sectors.
Official figures out on Wednesday are expected to show no growth in manufacturing in April, following a 0.1% rise in March, according to a Reuters poll of economists.
The EEF expects that the sector will be broadly flat this year after the 2015 decline, when several steel factories closed and plummeting oil prices forced BP and Shell to make big cutbacks. The organisation lowered its forecasts, to a 0.1% fall for output this year, from a previously estimated rise of 0.6% (last year it fell by 0.3%). However, a better second half is expected to carry through to growth of 1.2% next year. The EEF’s GDP estimates remain unchanged at 1.9% this year and 2.2% in 2017.
The EEF’s chief economist, Lee Hopley, said: “Demand conditions in manufacturing at least seem to be heading the right direction, but the climb back to growth is still being challenged by the sluggish global economy and subdued investment at home.”
Another report on business trends, from business advisers BDO, found that the EU referendum had put a pause on both investment and hiring decisions. BDO’s output index dipped to 99.7, marking the first first time since 2013 that it has fallen below the 100 level that indicates UK long-term economic trend growth of about 2%.
Peter Hemington, partner at BDO, said: “In the end, investment drives productive capacity, growth and living standards. After the referendum, we must see businesses starting to invest or we face a worrying future.”
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