Brightening skies for manufacturing in Q4 but clouds could be on the horizon

The UK manufacturing industry has regained momentum in the last quarter of 2017, however, longer term prospects are uncertain, according to the findings of a new survey.

According to EEF, the manufacturers’ organisation and accountants and business advisory firm BDO LLP, Britain’s manufacturers saw the delayed recovery finally arrive in the fourth quarter, with a much-improved boost to output and orders.

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.

The improved picture is mainly being driven by a better UK market, though the much expected boost from a weaker pound is expected to come to fruition in the next quarter. The survey also showed the majority of manufacturing sectors and regions reported more positive output balances in the past three months compared with the previous quarter.

As a result, better conditions are also spurring a rebound in recruitment intentions, as well as a turnaround in investment to fulfil customer requirements and secure productivity gains.

However, EEF stressed that the picture is one of the sector regaining ground after a sluggish eighteen 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.

Furthermore, 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.

“This is the most upbeat reading on the state of manufacturing we’ve seen for some eighteen months and signals the start of brightening conditions, 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 fulfil new customer demands," explained EEF Chief Economist, Ms Lee Hopley. 

“While confidence is back on the up, manufacturers are still aware 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.”