UK manufacturing tipped for strongest growth in Europe

EEF predicts sector will grow 2.7% this year, compared with 1.6% in Germany and 0.7% in France

Britain's manufacturers will enjoy faster growth than those in Germany or any other western European economy this year from rising demand at home and abroad, according to a report.

In its annual survey of companies, manufacturers' organisation EEF found 70% of firms forecast an improvement in the economy in 2014, while just 5% thought conditions would deteriorate. The balance of 65% compares with the sombre outlook at the same time last year when the reading was just 7%.

The balance expecting a good year for manufacturing is 52% – up from zero this time last year.

"Manufacturers are telling us they expect to make a greater contribution to growth, investment and jobs this year," said EEF's chief executive Terry Scuoler.

The EEF, along with the thinktank Oxford Economics, has forecast that the British manufacturing sector, which accounts for 10% of the economy, will grow 2.7% this year. That puts it ahead of all other western European countries in the thinktank's forecasts. German manufacturing is expected to pick up by 1.6% with France at just 0.7%, level with Spain and just of Greece at 0.4%.

Austria and Belgium are also expected to pick up strongly with growth of 2.4%

Manufacturers' caution at the start of last year now appears justified however with the sector now forecast by the EEF to have contracted 0.1% during 2013. The sector is still some 9% below its pre-recession level, said the group's chief economist Lee Hopley. "We are not yet where we want to be," she said. "There is still lots to do."

But the evidence from the sector was more positive for this year, including signs the pick-up in momentum was broad-based, she said.

"The sectoral difference is not as stark as a year ago. We were quite reliant on the transport sector to do a lot of the heavy lifting for the manufacturing sector over 2013... This year it should be more evenly spread," she said.

But the manufacturers' group also warned of risks from many sides as the sector strives to make up for the sharp contraction in recent years. The survey of 200 senior executives said uncertainty had become the "new normal" after the shocks of recent years when demand dwindled in the UK's key export market, the eurozone.

For the year ahead they are worrying about energy prices, being held back by the prolonged hollowing out of the UK's supply base and pressure for pay rises as skills shortages continue to bite.

The survey also suggested business investment will finally start to grow again this year.

Some 60% of companies said they planned to invest moderately or significantly in the UK. Signs that large companies are ready to start spending some of the cash piles they have been sitting on while smaller firms are prepared to borrow to expand reflect a brighter outlook for sales. Two-thirds of companies expect domestic sales to increase and, 55% of companies expect their exports to increase. The Middle East stands out as an increasingly favoured market for UK manufacturers while they are also more upbeat about the eurozone.

Despite the generally positive outlook painted by the survey and other recent indicators from the sector, the EEF said three quarters of manufacturers believe "economic uncertainty is the new norm".

Manufacturers' general optimism was echoed in a separate report suggesting Britain's biggest companies plan to increase investment and hire more workers in 2014.

The latest poll of 122 chief financial officers by consultants Deloitte also found almost half of respondents – 49% – said Bank of England governor Mark Carney's policies had boosted confidence in the UK's economic outlook. Just 3% said confidence had been dented and the rest saw no effect.

Companies' appetite for risk was the highest since the quarterly survey started six years ago and 70% of those surveyed said they expect businesses to increase hiring in 2014.

Ian Stewart, chief economist at Deloitte, said the survey showed finance chief were starting 2014 "in buoyant mood with a focus on expansion, investment and hiring.". This bodes well for the broad-based recovery policymakers hope to see in 2014."

"Large corporates have good access to capital and CFOs are more positive about financing their business with equity and bonds than at any time in the last six years. But in a sign that banks are lending once again CFOs rate bank lending as the most attractive form of finance for their business for the first time since 2008."

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UK manufacturing recovery in full swing as new orders boom

PMI rose to 58.4 in November, with new orders at a near-20 year high and thousands of new staff taken on last month

Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.

New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey. Encouragingly for the government's push to rebalance the economy, export orders also picked up.

The closely watched report comes as a timely boost to Chancellor George Osborne as he prepares to present his autumn statement plans for growth, spending and taxes on Thursday.

The headline activity index rose to 58.4 in November from an upwardly revised 56.5 in October. That was its eighth month above the 50-mark that separates expansion from contraction and was well ahead of the consensus forecast for 56 in a Reuters poll of economists.

The news sent the pound to a five-year high against a basket of other major currencies as traders bet an accelerating UK recovery would see interest rates rising sooner than the central bank has been suggesting.

Rob Dobson, senior economist at survey compilers Markit commented: "UK manufacturing continued to hit the high notes in November. The Manufacturing PMI struck a fresh two-and-a-half year peak as production and new orders rose at, or close to, 19-year record rates. The sector is on course to beat the 0.9% increase in output seen in the third quarter.

"Sustaining the recovery remains the key and the news here is also positive. The manufacturing expansion remains broad-based by sector, demand from the domestic market continues to surge higher and new export orders are rising at a clip close to October's 32-month high."

As activity and orders picked up, firms took on new staff at the fastest pace for more than two years.

Markit said manufacturers were creating around 5,000 jobs a month across all parts of the sector and all sizes of firms.

James Knightley, economist at ING Financial Markets said the job creation pointed to unemployment falling faster than the Bank of England is predicting. That could see interest rates rising sooner than the central bank has suggested, he said. Policymakers are waiting for unemployment to drop to 7% before they will consider raising borrowing costs from their current record low.

Kinghtley said the job creation suggested in manufacturing report "supports our view that the unemployment rate will drop below 7% late 2014/early 2015". He also highlighted a robust production reading and strong orders from the eurozone.

"Taking it all together it implies that the UK economy is looking in good shape with interest rate rises looking increasingly probable from early 2015," he added.

The survey follows forecasts from manufacturers' organisation EEF that the sector will grow faster than the wider economy next year. The group thinks the sector probably contracted by 0.1% this year but will grow 2.7% next year while UK GDP rises 2.4%. The EEF's latest survey suggested firms are more confident about investing and hiring staff over the next year but they feel the export outlook is still uncertain thanks to problems in some emerging markets and sluggish growth in the key market, the eurozone.

Economists said the manufacturing report marked a strong start to the monthly trio of PMI surveys from the three main sectors. Tuesday sees the release of the construction report while the closely watched survey from Britain's dominant services sector on Wednesday is expected to show that strong growth continued in November.

"If [the manufacturing PMI] is followed by robust construction and, especially services, surveys, it will look very likely that GDP growth in the fourth quarter could at least match the 0.8% quarter-on-quarter expansion seen in the third quarter," said Howard Archer, at IHS Global Insight.

"Much will depend on how well consumer spending performs in the fourth quarter, as there have been some signs that consumers have taken a breather after spending at a robust pace in the third quarter."

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UK manufacturing sector to grow faster than economy next year

Industry report gives buoyant forecast for UK manufacturing, predicting 2.7% growth compared with 2.4% for economy

Manufacturing will grow faster than the overall UK economy next year but much-needed business from overseas markets is looking shakier, according to an industry report published on Monday.

The buoyant forecast from UK manufacturers' organisation EEF marks a turnaround for a sector the government has repeatedly championed as an engine for growth, but which has struggled to emerge from recession.

News that orders and output are now rising and that UK factories plan to ramp up hiring and investment will be welcomed by George Osborne as he prepares to outline his latest plans to boost the recovery in his autumn statement this week.

But EEF's latest survey with accountants BDO showed exports were weaker than expected in recent months on the back of slower growth from some emerging markets and sluggishness in the eurozone, the UK's most important market.

EEF chief economist Lee Hopley said: "Over the course of the year we have seen a definite turnaround in prospects for manufacturing and this looks set to continue into next year. This increased confidence is evident in companies looking to increase their headcount and, most importantly for balanced growth, step up their investment.

"However, uncertainties in the global economy remain and a sustained recovery is not secure. As a result, growth must remain a priority for government over the remainder of this parliament, starting with the autumn statement this week."

The group, which has 6,000 member companies, says the risk comes from an uncertain export outlook. But it still thinks the sector will grow by 2.7% in 2014 compared with 2.4% for the economy overall. EEF thinks that this year the manufacturing sector will have contracted 0.1% while the wider economy grows 1.4%.

While that still puts that manufacturing sector in recession this year, the prediction marks a significant upgrade from the last estimate of a 0.5% decline. The group said that reflected a run of improving news. Its own quarterly survey showed a majority of firms reporting growth in both output and orders, though these measures slipped back from highs seen over the summer. Within the sector, the strongest results came from motor vehicle and electronics companies.

A separate report on Monday echoes recent optimism about new jobs being created by the private sector. Business lobby group the CBI says medium-sized businesses are helping to drive the recovery but that the government must do more to help them access finance, find skilled workers and get support to export.

Despite accounting for less than 2% of the private sector, medium-sized businesses have created jobs at twice the pace of large companies, the CBI said. They added 185,000 jobs between March 2010 and March 2013, a rise of 4.1%, and now employ 16% of the UK's total workforce.

Medium-sized firms, classed as having 50-499 staff and a turnover of £10m-£100m, have also grown their turnover by 7% – more than double that of smaller firms and large companies. They now contribute more than £300bn to the economy, but the lobby group says government support could boost that significantly.

"This hugely positive picture is reflected up and down the country where medium-sized businesses are major local employers, in many cases helping to offset public sector job losses during the downturn," said CBI director general John Cridland.

"With better access to a range of growth finance options, improved training and research support, and help to break into new export markets – these firms could be worth an extra £20bn to our economy by 2020."

Article Source : http://www.guardian.co.uk
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