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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Sterling to go plastic, Bank of England decides

New polymer banknotes to be introduced, beginning with Sir Winston Churchill £5 note in 2016

The Bank of England will announce plans on Wednesday to press ahead with switching to plastic banknotes, starting with the new Sir Winston Churchill £5 note in 2016.

The decision on polymer notes will mark the beginning of the end for 320 years of paper notes from the Bank. The move by Threadneedle Street follows Bank governor Mark Carney's native Canada, where plastic notes are being rolled out, and Australia, where they have been in circulation for more than two decades.

Carney launched a public consultation on polymer banknotes, seen as cleaner and more durable, shortly after arriving at the Bank this summer. However, the Bank's notes division has been considering plastic money for several years.

Bank officials have been touring shopping centres and business groups around the country with prototype notes to canvas public opinion and the final decision is due todayon Wednesday.

The Bank has promoted its polymer notes, featuring a see-through window and other new security features as less threadbare and tougher to counterfeit.

It has sought to quell concerns about the environmental impact of printing on plastic by suggesting they can last up to six times longer than the cotton-paper notes in circulation at the moment. The durability will also compensate for the higher production costs and save an estimated £100m, the Bank claims.

Its laboratory tests showed polymer banknotes only begin to shrink and melt at 120C, so they would fare better in washing machines but could be damaged by a hot iron.

The initial plan is to introduce polymer notes one denomination at a time, with the Churchill note in 2016 at the earliest and then the £10 note featuring Jane Austen next in 2017. The notes will continue to feature the Queen and retain their current colouring.

The move is the latest in a long line of changes for banknotes, first issued in return for deposits by the Bank when it was first established in 1694 to raise money for William III's war against France.

Colour £5 notes replaced white ones in the 1950s; the first portrayal of a monarch came in 1960, when the Queen appeared on a new £1 note; and the introduction of historical figures such as William Shakespeare started in the 1970s.

As part of the preparation for this latest change, banknote officials have already been working with retailers and the operators of vending machines and cashpoints.

Link, which runs the UK cash machine network, said its machines would need new cassettes to hold the plastic notes, because they will be smaller, and not because of the change in material. The 15% reduction in size for Churchill notes compared with the current Elizabeth Fry £5 note brings English notes into line with sizes in other countries. But they will remain larger than existing euro notes and the different denominations of sterling will retain tiered sizes to help blind people differentiate between them.

The prospect of polymer notes has raised some concerns for the visually impaired, however, as the popular practice of folding or creasing notes in different ways to identify different denominations will no longer be possible. Polymer notes can be folded but will not stay tightly folded in a particular way.

The Bank's prime task as banknote issuer is to maintain confidence in its money, and the move to polymer is expected to make life drastically more difficult for counterfeiters.

Advances in commercially available laser and inkjet printers over the past decade have helped criminals to produce fakes quickly and more cheaply.

The Bank concedes no note is counterfeit-proof but says the polymer notes will be slower and more expensive to copy.

The notes will be produced at the Bank's ultra-secure plant in Debden, Essex, by a private contractor.

The job is expected to go to either De La Rue, the existing maker of BoE notes, or Innovia, which manufactures most of the polymer notes currently in circulation around the world. The Bank has ruled out importing plastic money from China.

The British Plastics Federation welcomed the Bank's move towards polymer notes. "It's essential all the plastic banknotes are made in the UK. Why not make coins out of plastic? It will save wear and tear on our pockets," said director-general Peter Davis.

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