MANUFACTURING OUTLOOK

Transcription

1 MANUFACTURING OUTLOOK SEPTEMBER 213 EEF s snapshot survey of business conditions in engineering and manufacturing companies In partnership with

2 Contents Foreword 1 Introduction 2 Manufacturing roundup 3 Recent trends 4 Sector trends 6 Regional trends 7 Economic environment 8 Future trends 1 Sector forecasts 11

3 Manufacturing Outlook September Foreword Welcome to the third edition in 213 of Manufacturing Outlook, our quarterly report on the trends in UK manufacturing produced by EEF in partnership with BDO. This quarter s survey continues the recent trend of strengthening indicators in manufacturing and across the wider economy. UK GDP picked up in the first half of this year and what was notable about the official statistics was the broad based nature of growth. On the output measure, manufacturing, construction and services were all positive contributors to growth. And survey indicators, including our latest Business Trends Survey, point to continuing expansion in the second half of this year. Last quarter, our survey pointed to an emerging recovery in manufacturing with output and orders balances moving back into positive territory after a challenging 212. Industry prospects have brightened considerably over the past three months, with output balances hitting a three year high and export balances at their strongest level for two years. Moreover, positive responses can be seen across all sectors reported in our survey and there is growing confidence that improving trading conditions will continue into the final months of this year. Greater optimism about the sectors prospects is supporting the strongest investment intentions we ve seen in six years. This is particularly important given the disappointing performance of business investment since the end of the 28/9 recession. While business investment posted a modest 1% growth in the second quarter of 213, there is still a long way to go to make up the ground lost since the investment peak at the beginning of 28. While the signs of recovery that have emerged so far this year are positive, the need for better balanced growth from net trade and investment remains a necessity. As companies become more confident about their growth prospects, we need to see this translate into commitments to replace old equipment and invest in new capacity, and for this to take place in the UK. For this to happen we need on going action to ensure the UK is a competitive location for manufacturers to invest and grow. Lee Hopley, Chief Economist, EEF Tom Lawton, Head of Manufacturing, BDO LLP While a pick-up in domestic orders has been important for manufacturers over the past few quarters, economic news from overseas markets has also taken a turn for the better in recent months. Prolonged weakness in Europe has weighed on UK exporters for several years, but the eurozone returned to growth in the second quarter of this year. And while it is still early days in the region s recovery, survey evidence from core and periphery countries shows activity has perked up in the third quarter too.

4 Manufacturing Outlook September Introduction Output balances rebound strongly. Orders improve, led by strengthening domestic market. Recruitment steady, but investment plans hit six year high. Manufacturers optimistic about the next three months. Forecasts for manufacturing revised up in 214. Since our last survey, economic data has been pointing to a steady improvement in conditions across the UK. Both GDP and manufacturing output expanded by.7% in the second quarter, exports of goods and services grew at their fastest pace since the end of 21 over the same period and business investment also looks like it may have finally turned a corner. A number of other surveys covering all sectors of the economy point to the recovery gaining momentum in the second half of 213. Across manufacturing, our latest Business Trends Survey confirms this strengthening trend. In 213q2, our survey pointed to an emerging recovery for manufacturing, with most indicators seeing an improvement compared with the previous quarter. And in the past three months, output and orders balances picked up strongly with responses coming in firmer than companies were expecting three months ago. At 32%, the balance of companies reporting increased output levels over the past three months was the strongest recorded in three years. The total orders balance came in at its highest level since 211q2, while responses on export sales hit a two year high. Following on from the broad based improvement across all sectors we reported in the previous quarter, output balances were strongly positive in all parts of manufacturing. This is the first time we ve seen consistently positive sector balances since 212q2. There is also widespread confidence that this trend will continue into the final months of this year. Overall, a balance of 28% of manufacturers expects output to grow in the next three months the strongest balance since the start of 212 and there is increasing optimism about prospects in export markets. In line with a strengthening outlook, recruitment has continued, particularly amongst SMEs, over the past quarter and a positive balance of companies is planning to increase headcount in the next three months. However, it is the improvement in investment intentions which stands out in the quarter s survey. At 24%, the balance of companies planning to increase capital expenditure over the next year is at its strongest for six years. Some indicators have remained largely unchanged in the past three months. The balance of responses on UK prices dipped slightly from 3% to -2%, while export price balances nudged higher from to 1%. There was a modest improvement in both UK and export margins over the quarter, but both remain in negative territory. Manufacturers are not reporting expectations that either pricing power or profit margins will change markedly in the next quarter. We expect manufacturing output to record a modest decline of.5% in 213, but our forecast for growth in 214 has been revised up to 2.1%. This year the strongest performing sectors will be transport, but gains should be broad based in 214, with sectors such as metal products and non-metallic minerals returning to growth. Forecasts for GDP have also been revised up, both this year and next, to 1.2% and 2% respectively. Headline survey results % balance of change Past 3 months Next 3 months Output Total orders 27 3 Employment Export prices 1-2 Export margins -1-5 Cashflow Economic data during survey period 31 July 21 August Start End / $/ index Oil price (Brent Oil $/bl) Source: Bank of England and Energy Information Agency Key economic forecasts % change except where stated GDP Inflation CPI Inflation RPI World trade Base rate (%) Source: Oxford Economics

5 Manufacturing Outlook September Manufacturing roundup Chart 1 Does 213q2 mark the turning point in a challenging period for the sector? Index of Manufacturing, 21 = Chart 2 Non-EU exports continue to grow strongly as deficit narrows Goods exports less oil and erratics to EU and Non-EU countries, millions m EU Non-EU q1 21q2 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Source: National Statistics 21q3 21q4 Source: National Statistics 211q1 211q2 211q3 211q4 212q1 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May q2 212q3 212q4 213q1 213q2 Manufacturing output finally appeared to turn a corner in 213q2 with output increasing.7% on the quarter on the back of strength in pharmaceuticals, transport equipment, and electrical equipment. Output contracted 1.7% in the 212 year overall and this indicates how challenging the last couple of years have been for the sector, which has been faced with weak European markets and subdued domestic consumers. June was a particularly encouraging month with monthly output up 2.%. Strength looks to have continued into the third quarter with the PMI reading for July at a 28 month high of UK goods exports hit a record 78.4 billion in 213q2 with sales of aircraft in particular making a strong contribution in June. The overall deficit in goods was 24.9 billion, down from 26.5 billion in 213q1. Exports outside the EU rose above 4 billion for the first time and the UK s trade surplus with the U.S. grew as exports increased 3.3% while imports marginally fell. Over a longer-term perspective, trade (both imports and exports) have been relatively flat for most of the past two years exports grew only.9% in 212 after a sharp rebound following the recession. Chart 3 Manufacturing employment growth starting to slow? Change in number of people in employment in the manufacturing sector, s s q1 21q2 21q3 Source: National Statistics 21q4 211q1 211q2 211q3 211q4 212q1 212q2 212q3 212q4 213q1 Employment in manufacturing has enjoyed something of a renaissance since the major recession with the first sustained increases in employment overall since This has occurred at the same time as capital investment has remained subdued. However, the strong surge in 212 does appear to be tailing off and in our survey this quarter, only small manufacturers indicated intentions to recruit at the same time as investment intentions increased strongly. This may signal an imminent shift in the sector towards a greater reliance on capital to increase capacity rather than labour, which is more consistent with the long-term trend.

6 Manufacturing Outlook September Recent trends Chart 4 Output and orders balances back to 21 levels % balance of change in past three months % Output Orders Chart 5 Domestic orders more positive than export orders % balance of change in orders in past three months % Domestic Export q3 28q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q3 27q3 28q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q3 More manufacturers reported an improvement in output and orders in the past three months, with balances rising back to the level we saw early in the post-recession recovery in 21. In all manufacturing sectors, a positive balance of companies said output and orders had increased in the past three months, showing this recovery to be very broad based across the sector. The strongest positive balances were reported in the electrical equipment and motor vehicles sectors. Balances this quarter exceeded the forward looking balances that manufacturers reported last quarter and resonate with the signs we have seen in recent official data for the wider economy. Both export and domestic order balances have seen a solid rebound this quarter, also exceeding forward looking expectations reported last quarter. However, unlike the recovery in 21, the domestic orders balance is stronger than the export orders balance and has been for the past four quarters. This suggests that we are seeing more of a domestic led recovery this time around. Domestic orders were stronger than export orders in all sectors except one export orders were slightly stronger in the mechanical equipment sector, which is one of the more export intensive manufacturing sectors. Chart 6 Margins improve once again % balance of change in margins in past three months % Domestic Export 27q3 28q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q3 Margins improved again this quarter with balances for both domestic and export orders reaching the highest they have been since the first half of 211. The export margins balance was more positive than the domestic margins balance over the past three months, although the majority of companies, 7% and 78% respectively, reported no change in both domestic and export margins. The balance of companies reporting margins worsening was much higher for larger firms, both domestically and overseas. Electrical equipment and basic metals manufacturers reported the most negative margins balances in the past three months, with motor vehicles and metal products reporting the most positive.

7 Manufacturing Outlook September Chart 7 Employment balances hold steady % balance of change in employment in past three months % q3 28q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q3 Recruitment balances held steady with a balance of 12% of companies reporting that they had increased employment in the last three months, up from 11% last quarter. Smaller companies were responsible for all of the growth in employment this quarter; a balance of 3% of larger companies reported employment had decreased in the last three months. Unlike in previous quarters, all sectors posted positive employment balances and the rubber and plastics sector had the strongest positive balance this quarter. Basic metals saw the biggest improvement, with a balance of 28% of companies saying they increased employment in the past three months after a balance of 9% reported employment decreased in q2. Chart 8 Investment plans bounce back % balance of change in investment plans % q3 28q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q3 Investment intentions have rebounded this quarter reaching the second highest level seen in the history of this survey. A balance of 24% of companies said they are planning to increase their capital investment in the year ahead, up from a balance of 7% last quarter. This pickup in investment plans was driven by small and medium-sized companies and may be a sign that companies are concerned about capacity as output and orders start to gather pace. In contrast, larger companies on balance indicated no change in their investment intentions. Most sectors plan to increase investment on balance, with the metal products sector posting the strongest positive balance for investment intentions in the year ahead. Summary: past three months % balance of responses (% up minus % down) q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 Total output UK new orders Export new orders Total new orders Employment Capital expenditure plans Average price of domestic orders Average price of export orders Margins on domestic orders Margins on export orders Levels of cashflow

8 Manufacturing Outlook September Sector trends Chart 9 Basic metals moves into positive territory % balance of change in output % 213q2 213q3 next three months Basic metals Mechanical Metal products Electrical Electronics Rubber and plastics Motor vehicles As with last quarter s Business Trends Survey, most sectors once again posted an improvement in the output balance for the past three months. This quarter, however, companies in the basic metals sector also reported increased output, with a balance of 2% of companies saying that they had seen growth in the last three months. This was well above expectations reported last quarter and reflects improvement in a range of areas including increased orders particularly domestic orders and reduced pressure on margins. Chart 1 Investment intentions strengthen for most sectors % balance of change in investment plans (next 12 months) % 213q2 213q Basic metals Mechanical Metal products Electrical Electronics Rubber and plastics Motor Vehicles The positive investment intentions reported in this quarter s survey were noted by companies in almost all sectors. Investment intentions were particularly strong amongst metals and mechanical equipment manufacturers with balances of 35% and 25% of companies in these sectors respectively reporting the intention to boost capital expenditure in the next twelve months. The only sector not to report positive intentions was electronics, where a balance of 8% of companies said they expected to reduce capital expenditure in the next twelve months; this was down from last quarter, when companies in the sector said that they expected to increase investment. Sector summary % balance of responses (% up minus % down) Past three months Next three months Output Total orders Employment Export price Cashflow Output Total orders Employment Export price Cashflow Metals Metal products Mechanical Electronics Electrical Motor vehicles Other transport* Food and drink* Chemicals* Rubber and plastics Non-metallic mineral products* * Insuffic ient data

9 Manufacturing Outlook September Regional trends Chart 11 Output balances improve in all regions % balance of change in output in past three months % 213q2 213q SE and London Eastern South West West Mids East Mids Yorks & Humber North West North East Every region saw an improvement in its output balance in this quarter s Business Trends Survey. For the second quarter running, the South East and London was the strongest region, with a balance of 57% of companies saying that they saw output increase in the past three months. As well as strong output balances, companies in all regions also reported positive order balances, although in contrast with the general trend companies in the North East said UK orders were flat. Chart 12 All regions expect output growth to continue % balance of change in output in next three months % 213q2 213q SE and London Eastern South West West Mids East Mids Yorks & Humber North West North East Not only did the balance of companies in all regions report growth in the last three months, but this is also expected to continue for all regions in the next three months. Companies in the East of England reported the strongest expectations, with a balance of 69% saying that they thought output would increase in the next three months. Companies in the North East reported the least positive expectations. As with the past three months, companies in the North East reported weaker domestic orders than all other regions, with only 5% of companies expecting these to grow, compared with balances over 2% in every other region. Regional summary % balance of responses (% up minus % down) Past three months Next three months Output Total orders Employment Export price Cashflow Output Total orders Employment Export price Cashflow SE and London Eastern South West West Mids East Mids Yorks & Humber North West North East Scotland

10 Manufacturing Outlook September Economic environment Growth strengthens in 213q2 with signs this will continue into the next quarter. New Bank of England Governor turns to forward guidance to keep long rates low. Rebalancing has not yet taken hold. Better signs internationally as Europe stabilises. Momentum starts to build behind recovery GDP growth strengthened according to the ONS s first estimate for 213q2 with an expansion of.7% quarter on quarter. Importantly, all major areas of the economy, including manufacturing, recorded growth. After a faltering period during 211 and 212, some momentum appears to be building in the UK economy. Indicators of activity at the start of 213q3 have been strongly positive for manufacturing, construction, and services according to the Markit/CIPS purchasing managers indices. July readings were at 54.6, 57., and 6.2 representing 28, 37, and 79 month highs respectively. The manufacturing reading fits with our own survey this quarter. Chart 13 Growth builds but rebalancing remains elusive % quarter-on-quarter contributions to growth and overall GDP growth % Households Government Investment Trade GDP 212q1 212q2 Source: National Statistics 212q3 Rebalancing still elusive 212q4 213q1 213q2 The trade deficit narrowed in 213q2 as UK goods exports rose to 78.4 billion the highest on record. Goods exports outside the EU were up 7.5% to over 4 billion. Despite this performance, the rate of growth of both imports and exports has been relatively flat for most of the past two years after previously rebounding strongly following the recession. Business investment increased.9% in 213q2 relative to 213q1 but it still remains a quarter below its pre-recession peak. Overall, despite the return to growth, the economy has some way to go before any rebalancing can be said to be underway. Our forecasts for GDP growth this year are for growth of 1.2% accelerating to 2.% in 214, with investment making a more positive contribution than in recent years. The still-precarious nature of the UK recovery and relatively stable inflation over the past year means the new Governor of the Bank of England Mark Carney has gone further than his predecessor in trying to dampen down expectations of future MPC rate-tightening. In August, the MPC issued explicit forward guidance suggesting monetary conditions will remain accommodative bar a surge in inflation or an emerging asset bubble while unemployment remains above 7%. However, despite on-going loose monetary policy, longer-term interest rates on government bonds have been drifting up following similar moves in the US. Initial market reaction suggests the MPC may have to further bolster its resolve to ensure this has an impact on long-term rates important because the recovery can still be hurt by prematurely increasing interest rates. Chart 14 Signs of international recovery and stabilisation? % quarter on quarter change in GDP % q1 212q2 Source: Oxford Economics United States Japan Eurozone 212q3 212q4 213q1 213q2 213q3 Recovery continues in the U.S. and Japan as China and the EU stabilise 213q4 European prospects have improved since last quarter following stronger than expected growth results for 213q2 and positive lead indicators for 213q3.

11 Manufacturing Outlook September Strengthening household sector demand in France and Germany and a moderating pace of contraction in southern Europe were the main drivers of growth. Germany recorded growth of.7% and France.5% leading the overall eurozone to finally pull out of recession with.3% growth in the three months to June 213. Prospects for the remainder of the year remain fairly muted as the southern countries continue to struggle with their public finances. France and the eurozone overall are expected to contract for 213 as a whole despite recent performance, and Germany is expected to grow only modestly at.4%. The US economy performed better than expected in the second quarter, growing at an annualised pace of 1.7% but growth in the first quarter was revised back. Consumer spending growth appears to have slowed a little although second quarter estimates were still ahead of most economists expectations. The impact of public sector spending cuts was much less severe in the second quarter than the first and, with the economy strengthening, the general view is that the worst of public sector consolidation is now behind us. The housing sector in the US continues to strengthen and, although the trade deficit widened in June, this is seen as a sign of US strength relative to other economies. Trade-focused sectors in the U.S. economy, such as manufacturing, continue to report strong orders. With this in mind, and the unemployment rate set to fall as the recovery gathers steam in the second half of 213, most economists expect that the Fed will begin to taper its programme of asset purchases from September (hence the drift up in longer-term interest rates). We expect US GDP growth of 1.6% in 213 increasing to 3.1% in 214. Business investment in Japan slowed in 213q2 for the sixth straight quarter but growth in consumer and government spending helped sustain the recovery initiated by the accession of Shinzo Abe to the Japanese Prime Ministership late last year. The government and the central bank are both focused on raising the Japanese inflation rate in an attempt to boost growth. Early signs are encouraging with profits, employment, and lending to individuals all up. The difficulty will be introducing sustained improvements in competitiveness while avoiding an adverse market reaction to Japan s large public debt and deficit. We expect the Japanese economy to grow 1.8% in 213 and 1.4% in 214. The Chinese economy is showing signs of stabilisation after a slowdown in the first two quarters of 213 following efforts by the authorities to alleviate strained conditions of indebted companies and local governments. Industrial production and trade numbers in recent months have come in stronger. Growth is expected to be slower this year than in previous years at 7.2%. Authorities are prepared to tolerate slower growth in order to reorient the economy away from an excessive reliance on debt-fuelled investment (making up nearly half of GDP growth) and exports. UK Economic forecasts % change except where stated Trading environment Exchange rate ( / ) Exchange rate ($/ ) Exports Imports Current account (% GDP) Output Manufacturing GDP Costs and prices Average earnings Oil price (Brent Oil $/bl) Employment Manufacturing (s) 2,553 2,625 2,68 2,59 Rest of economy (s) 31,527 32,119 32,318 32,59 Unemployment rate (%) Source: Oxford Economics and EEF International Economic forecasts % change except where stated GDP Inflation France Germany Japan U.S Eurozone China India World Source: Oxford Economics

12 Manufacturing Outlook September Future trends Chart 15 Domestic sales balances set to outperform exports in q4 % balance of change in orders in next three months % Domestic Export One of the characteristics of the early recovery in 21 and 211 was weakness in the domestic market being offset by stronger export prospects. Over the past year we have seen something of a turn-around in the profile of demand, with greater strength from the domestic market relative to overseas markets. -1 Looking ahead to the next three months, companies -2 expect orders from both domestic and export markets to increase on balance, with UK demand -3 expected to continue to outweigh demand overseas. -4 Despite the variation in where demand is expected -5 to come from, manufacturers expect pressure on domestic and export margins and prices to be largely unchanged from last quarter. 28q1 Chart 16 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 Recruitment expected to pick up moderately % balance of change in employment in next three months % q1 28q3 29q1 29q3 21q1 21q3 211q1 211q3 212q1 212q3 213q1 213q1 213q3 213q3 One of the puzzles of the past three years has been the strong employment in the economy that has persisted despite weak output growth. In 212, manufacturing employment grew for the first time since Employment balances slowed in the second half of 212 and, while expected to strengthen in the next three months, it is expected to remain below the average employment balance reported from mid-21 to mid-212. A balance of 16% of companies expects to increase employment in the coming three months. As with the last three months, smaller companies have reported stronger intentions to increase employment in the next three months than larger companies. Summary: next three months % balance of responses (% up minus % down) q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 Total output UK new orders Export new orders Total new orders Employment Average price of domestic orders Average price of export orders Margins on domestic orders Margins on export orders Levels of cashflow

13 Manufacturing Outlook September Sector forecasts Recovery on the cards for the manufacturing sector Manufacturing output growth exceeded expectations in the second quarter of this year, expanding.7%. We are now expecting a contraction of.5% in 213, up from our August forecast of -.7%, much of which is due to previous falls in output. The recent run of very positive data supports our view that the manufacturing sector will continue growing on a quarterly basis for the rest of this year and into 214. Of particular importance to manufacturing are the recent rises in consumer confidence, consumption, and export growth to non-eu markets. We are forecasting manufacturing sector output to expand 2.1% in 214, slightly ahead of growth in the wider economy. This return to growth is expected to be relatively broad-based, with output in 11 out of 13 manufacturing sectors forecast to grow next year. After growing in 212 for the first time since the late 199s, overall employment in manufacturing is expected to return to the long-run trend and fall moderately in 213 and 214. However, employment is forecast to rise in five sectors in each of the next two years. Chart 17 Modest decline in employment expected in 213 and 214 Numbers employed in manufacturing (workforce jobs measure), s s Source: EEF and Oxford Economics Motor vehicles and other transport remain the strongest manufacturing sectors Motor vehicles had a strong first quarter this year, and as such we have revised our forecasts for the sector up to 6.2% in 213. Commercial vehicles output may 214 fall in June and July following a major plant closure but growth in cars and engines should offset this. The sector is seeing strong export demand for both cars and commercial vehicles, particularly from emerging markets, and strong domestic demand for new cars. Employment prospects are positive, linked to both continued growth and new product launches expected in the next couple of years. Other transport remains one of the strongest manufacturing sectors, and growth is likely to continue on the back of strong order books. We are forecasting output growth of 8.8% this year. Modest employment growth in 213 is forecast to be followed by stronger growth in 214. Improving consumer sentiment likely to provide a boost for some sectors The food and drink sector is well-placed to benefit from recent improvements in consumer sentiment. Although we are forecasting output to fall 2.1% in 213 the sector should have a strong third quarter, driven in part by the warm weather. Stronger domestic demand should support the sector as we look ahead to 214, and we expect modest growth of.2%. Non-metallic minerals output is forecast to fall 5.8% in 213, though this marks a considerable improvement on 212, when output fell by 13.3%. Growth in employment and output looks likely in 214, especially as the construction sector starts to benefit from growth in house-building, driven by improvements in consumer confidence and the government s Help to Buy scheme. Growth in motor vehicles and construction will benefit a range of sectors We have revised up our forecasts for basic metals after particularly strong output growth in the second quarter of the year. We now expect growth of 3.9% in 213. Major manufacturers in the sector reported better results in the recent quarter, based on stabilising steel prices in Europe and investment in productivity. Restocking and growth in sectors such as automotive and construction, will also drive growth but the sector still suffers from long-term overcapacity so gains in output prices may be short-lived. Employment in the sector is forecast to fall in 213 and 214 as the sector continues to focus on increasing competitiveness.

14 Manufacturing Outlook September In contrast with basic metals, we have revised down our forecasts for the metal products sector, following a contraction in the first half of the year. However, the sector is well-placed to benefit from expected growth in the motor vehicles and construction sectors later this year and into 214. Reports of companies upping investment and employment in order to meet new demand mean we expect some employment growth in 213. Rubber and plastics is also likely to benefit from strength in the automotive and construction sectors. Companies are benefiting from lower raw materials costs and recent work to improve productivity and cost control. A fall in output in the first quarter means the sector will likely contract in 213, but we are forecasting a return to growth and an increase in employment in 214. As confidence starts to rise other sectors should pick up Mechanical equipment saw a significant fall in output in the first half of 213, which has led us to revise down our forecasts for 213 to a contraction of 9.8%. However, the sector should benefit from the increase in investment intentions seen in this survey and we expect a return to growth in 214. There do, however, remain risks to this forecast as intentions do not always translate into actual investment. Electronics also saw output fall in the first half of 213, and we expect output to fall.8% this year. The sector has contracted every year since 2, but we have seen signs of the rate of contraction slowing and growth in some areas, such as components. This could lead to growth for UK electronics in 214, which tends to do well when the global sector is nearing capacity. However, some of this growth will be led by productivity improvements, so it is unlikely that employment will rise. New and niche products are also providing opportunities for manufacturers The electrical equipment sector is likely to see a modest contraction of 1.3% this year, after a weak end to 212, but prospects remain strong for 214 with new products coming to market. Linked to this, a number of announcements of vacancies mean employment may start to grow. There is a similar story in the textiles sector, which has also seen recent contractions in output and indeed we expect output and employment to fall this year. However, there are opportunities for manufacturers who are developing new products in niche areas such as surgical textiles. Sector growth rates and forecasts % change Output Employment Basic Metals Metal products Mechanical Electronics Electrical Motor vehicles Other transport Food and drink Chemicals Rubber & plastics Non metallic minerals Paper and printing Textiles Manufacturing Source: EEF and Oxford Economics

15 About us EEF is dedicated to the future of manufacturing. Everything we do is designed to help manufacturing businesses evolve, innovate and compete in a fast changing world. With our unique combination of business services, government representation and industry intelligence, no other organisation is better placed to provide the skills, knowledge and networks they need to thrive. We work with the UK s manufacturers from the largest to the smallest, to help them work better, compete harder and innovate faster. Because we understand manufacturers so well, policy makers trust our advice and welcome our involvement in their deliberations. We work with them to create policies that are in the best interests of manufacturing, that encourage a high growth industry and boost its ability to make a positive contribution to the UK s real economy. Our policy work delivers real business value for our members, giving us a unique insight into the way changing legislation will affect their business. This insight, complemented by intelligence gathered through our ongoing member research and networking programmes, informs our broad portfolio of services; services that unlock business potential by creating highly productive workplaces in which innovation, creativity and competitiveness can thrive. To find out more about this report, contact: Lee Hopley Chief Economist lhopley@eef.org.uk Rachel Pettigrew Senior Economist rpettigrew@eef.org.uk Felicity Burch Economist fburch@eef.org.uk EEF Information Line infoline@eef.org.uk The business trends data used in this survey has been provided by members of EEF and Scottish Engineering. To participate please contact anorris@eef.org.uk To talk about any issues your manufacturing business may be facing please contact: Tom Lawton Head of Manufacturing tom.lawton@bdo.co.uk About BDO LLP BDO LLP is the UK member firm of BDO International, the world s fifth largest accountancy network, with more than 1,2 offices in 138 countries. We operate from 24 offices in the UK, with some 3,5 partners and staff. We believe that clients want an adviser they can trust, one who understands them and their objectives. Our sector-focused approach means we provide genuine expertise in what matters to our clients so our advice is always relevant, always insightful and frequently challenging. Like us, most manufacturing clients are now active internationally. Most are involved in acquisitions, public offerings and major capital projects. We have great experience in those areas. Our manufacturing clients have regulatory, reporting and legislative issues. We bring sector expertise and a proactive approach to assist. Our clients want to mitigate and manage tax liabilities globally. Our international specialist team have the skills to assist. Manufacturing remains one of the key industries of the UK economy. We are delighted to be able to play an active role in supporting the businesses that operate in this vibrant, changing and challenging sector. Published by EEF, Broadway House, Tothill Street, London SW1H 9NQ Copyright EEF September 213

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