EEF reveals positive figures for UK manufacturing but remains cautious

Prospects for Britain’s manufacturers have improved over the past three months, with companies reporting the strongest output and orders balances for a year according to the second quarter ‘Manufacturing Outlook’ survey published today by EEF, the manufacturers’ organisation, and business advisers, BDO.

Trading conditions for manufacturers have been challenging over the past year, but the signs of optimism reported last quarter were justified with broad based improvements in output balances and expectations that the sector will see more positive news going into the second half of the year. 

The EEF says the domestic market has improved as companies report the first positive balance on UK sales since Q2 2012. However, responses were somewhat weaker on export sales, and manufacturers are a bit less optimistic about a strong rebound in overseas sales compared with three months ago.

The manufacturers’ organisation reported that a further reason for caution in the survey is the drop in the investment intentions balance from +13 percent in Q1 2013 to +7 percent, the lowest since Q2 2012. It says investment plans had proven resilient as output weakened, so this quarter’s fall would be of concern if repeated as manufacturing investment is still some 19 percent below its pre-recession peak.

Commenting, Ms Lee Hopley, EEF Chief Economist, said: “Positive manufacturing data has been somewhat easier to find in recent months and our latest survey provides further confidence that the sector’s prospects are improving. While the demand environment in major European markets remains weak, and some individual industrial sectors are facing their own specific challenges, the improvement in output and positive expectations on orders bodes well for growth going into the second half of the year. However, a couple of aspects – namely the relative weakness in export orders and the softening in investment intentions – suggest that confidence may still need to be tempered for now.”

EEF’s forecasts for growth in manufacturing this year have been revised down again in large part as a consequence of the larger than expected contraction in output at the beginning of 2013. A decline of 0.5 percent is expected in 2013, with quarter-on-quarter expansion strengthening in the latter part of the year. The forecast for GDP is unchanged from the previous quarter at 0.9 percent.