Manufacturing in the West Midlands remains buoyant

The EEF said companies were increasingly confident about prospects for the rest of the year, defying predictions about the impact of Brexit and the snap General Election.

The latest manufacturing outlook survey for the second quarter of the year – compiled by industry organisation EEF and accountancy firm BDO – showed that manufacturers’ views of demand prospects in exports markets have become steadily more positive over the past 12 months. Demand in European markets looks especially buoyant with over three-fifths of companies nationally (61%) reporting positive demand conditions.

The positive picture is reflected – even exceeded – in the West Midlands where a balance of 44% of firms have continued to see output grow, matching last quarter’s figures which outstripped manufacturers’ own high expectations. Order books too lived up to last quarter’s highs, with a balance of 43% of companies seeing their order books expand. In fact, when it comes to order books, West Midlands’ manufacturers continue to lead the way, outpacing all other UK regions.

Employment is slightly down on expectations, with a balance of 24% of firms recruiting in the last quarter, against an expected balance of 34%. Investment intentions are also down from last quarter, with a balance of 18% of firms planning to invest more, compared to a balance of 29% last quarter.

EEF West Midlands regional director Charlotte Horobin, said: “Our survey marks another quarter of positive news about growth prospects for UK manufacturers. Industry is reporting that output and orders have continued to head higher in recent months and the recovery in manufacturing globally is a big part of the story. It’s very encouraging that UK manufacturers have positioned themselves to capitalise on the windfall of a competitive pound and resurgent world economy.

“While growth and confidence hasn’t been knocked off track by the snap election, but it’s not simply plain sailing from here. There is the continuing challenge of managing input cost rises; ensuring success in attracting and retaining the skills that are in increasing demand and driving up investment in the sector. Whoever forms the next Government must set in stone as a matter of urgency a bold industrial strategy that will help cement the foundations for long-term growth for industry.”

Tom Lawton, partner and head of manufacturing at BDO in the West Midlands, added: “The Q2 survey results present a very positive and exciting picture for manufacturing, showing increasing orders in both home and export markets. The continued growth in world markets such as Asia, North America and Europe are driving positive demand conditions. These results show yet again that manufacturing has the resilience and the qualities to form one of the foundations of a successful UK economy.

“Brexit does create uncertainty and it is important that the new government is clear that Brexit will be structured in a way that serves the best interests of business. As part of this it is vital that we remain open for business and negotiate new trade agreements with the EU and other key markets so that international markets remain open and accessible as soon as Brexit is completed.”

The EEF pointed to a continued confidence that industry will enjoy further quarters of output and expansion into the second half of the year.

This is in spite of response balances easing slightly from the results of Q1, defying any predictions that political uncertainty caused by the election and Brexit may impact on business conditions.

Looking forward, manufacturers expect output and orders to dip, in part driven by a downturn in the automotive industry, with the tendency of consumers to cut down on spending for big-ticket durable items like cars when incomes are squeezed. A balance of firms expect orders to fall from 60% to a balance of just 21% of companies expecting orders to increase.

The survey also showed that, in contrast to recent years, positive output balances were reported across all sectors nationally. However, those in the capital goods sector are performing especially well as global manufacturing intentions have increased. A good pipeline of orders across the industry is pushing up demand for new employees and recruitment intentions soared to the highest level in three years, whilst investment intentions were in positive territory for the third quarter in a row.

EEF warned, however, that the current sweet spot for the sector cannot be guaranteed given the uncertainty ahead, in particular the likely continued squeeze on household incomes and possibility of no deal on Brexit which could hit trade.

In response to the continued improvement in economic conditions EEF has revised its forecasts upwards. Manufacturing is now expected to expand by 1.3% in 2017 and 0.5% in 2018 (1% and 0.1% in Q1) and GDP by 1.8% and 1.3% respectively (unchanged from Q1).