Manufacturing takes off in Q2

Manufacturing seems to have been on the up in the second quarter of the year, according to a survey published by manufacturer's organisation EEF and BDO LLP.

The survey of 547 companies, conducted from 5-26 May, found that output and orders balances reached their highest levels since the survey began in 1995, suggesting that manufacturing's contribution to the economic recovery is strengthening.

In addition the survey found that greater confidence in the manufacturing sector was beginning to "translate into recruitment". However EEF said that investment balances were still lagging due to uncertainty about future demand.

Looking towards the Coalition government's emergency budget, due on 22 June, the EEF said that it expected a package of tax reforms to support growth and to alleviate concerns in the manufacturing sector.

The survey found that over the last three months the balance of outputs was +30 per cent, up eight per cent from the first quarter, while the balance of new orders was +34 per cent, up from +2 per cent in the first quarter.

The increase in order balances was put down to improvements both in Britain's domestic market and in export markets. The balance of British orders was a record +24 per cent, while export orders also reached a record high balance of +23 per cent.

A balance of +15 per cent of companies said they expected to be recruiting new people in the third quarter. However investment intentions were found to be flat over the previous quarter, although this was an improvement from seven quarters of negative balances. Around 65 per cent of companies said they were unsure about domestic demand, 46 per cent said they were unsure of future tax changes while just over 50 per cent said their parent company lacked finance for investment.

A balance of +22 per cent of companies said they were positive and expected increased output looking forward, while a balance of +20 per cent said they expected higher orders.

The EEF said it expected manufacturing growth of 3.5 per cent in 2010 and 2011, while engineering output is expected to rise 6.4 per cent this year.

Lee Hopley, Chief Economist at the EEF, said, "The steadily improving trends in manufacturing look set to continue in the coming months and the upswing is being felt right across industry. Manufacturers are pulling in more export orders on the back of a recovering world economy and a better outlook for the domestic market is giving companies some confidence to recruit again.

"But manufactures are very aware that economic headwinds could still pick up again as there are still risks to a sustained recovery. Great importance is now being placed on the need to rebalance the UK economy. In the short term this requires a Budget which delivers tax reform and deficit reduction in a way which provides some stability and gives manufacturers the confidence to invest."

Tom Lawton, Head of Manufacturing at BDO, commented, "These are a good set of results, especially as the manufacturing sector is still getting to grips with the uncertainty of the new coalition government. Manufacturers are now indicating that they want the government to deliver in five key areas: deal with the deficit, establish an environment that allows manufacturing to be competitive, provide specific support to mid-market manufacturers and create and support investment in emerging technologies but without forgetting the needs of the traditional manufacturer.

"But, British manufacturers have never waited for, or relied on, politicians and regulators to initiate change. The emerging economies provide a huge opportunity for UK manufacturing. Those businesses who understand their core capabilities and who work hard to nurture them whilst adapting to the rapidly evolving international marketplace could see growth on an unprecedented scale."