Market scenario UK: Manufacturers end year with cheer

European markets drive export demand as Brexit looms. This is the first year in a decade since output and orders have remained positive in every quarter.

Britain’s manufacturers are ending the year with a bang on the back of the continued improvement in global demand and increased export performance, according to a major survey published recently by EEF, the manufacturers’ organisation and accountancy and business advisory firm BDO LLP.

According to the EEF/BDO Manufacturing Outlook Q4 survey, manufacturers are continuing to ignore the ongoing political uncertainty at home as improved global demand, from European markets in particular, and the increase in commodity prices is feeding growth across the manufacturing supply chain. This is compensating for weaker UK demand as the squeeze on living standards and Brexit uncertainty continues to take its toll domestically.

This strong performance, across all sectors and regions, has led EEF to upgrade growth forecasts for manufacturing for this year and next, meaning the sector will outperform the economy overall. Furthermore, the positive conditions in the fourth quarter mean that 2017 will be the first since the financial crisis when both output and order balances have been positive in every quarter throughout the year.

The bounce in business conditions seen over the course of this year is driving the need for investment in more capacity to fulfil increasing customer demands. As such we have seen the second successive improvement in investment intentions, with the balance of companies planning more capital expenditure hitting a three and a half year high.

The growth scenario

According to the survey, both output and total orders remained in very positive territory at +34% (+34% in Q3) and +30% (37% in Q3) respectively. Looking forward, whilst the balances are expected to ease further from those seen this year, some of which have been historic highs, they are expected to remain very healthy.

The continued growth in world trade and weakness in the UK market has meant that the gap between export and domestic orders has continued to widen due to rising inflation, slowing consumption growth and Brexit uncertainty. Export orders remained at the same level as in Q3 at +33% whilst domestic orders continued to soften, easing back to +12% from +22% in Q3. Whilst some sub-sectors are showing more resilience, the divergence in confidence between the UK market and rest of the world is likely to linger into 2018.

The survey covered 347 responses and was carried out between November 1 and 22.

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