The health of UK manufacturing – takeaways from EEF report

The state of UK manufacturing is steadily improving, suggests the most recent report from EEF/BDO, released in June. The Manufacturing Outlook for Q2 2017 is one of the industry’s key indicators of the health of UK manufacturing and it paints a positive picture.

After last year’s decline in manufacturing, this year has been about successful recovery and figures are predicted to continue to grow upwards throughout the remainder of 2017 and into next year.

But what is behind this improvement? The UK market has been bolstered by a general global upswing and improved business confidence, which have, in particular, led to a rise in export orders and demand. This is despite the political landscape remaining uncertain in terms of Brexit, but for now at least, the impact is remaining minimal. This may change as negotiations continue over the coming year.

Output: ups and downs

While the overall report shows positive outlook for UK manufacturing, there are some drops. For example, in terms of output, figures are slightly short of the expectations from the last quarter, after a very strong start to the year. Coming off the back of a four-year high, however, the figures are still healthy and are a vast improvement over data from last year.

The downturn in output was more noticeable in some industries than others. For example, output balances in the metal industry were slightly diminished. Earlier in the year, however, vigorous demand and increased global metal prices meant a surge in this area that has naturally levelled out and will likely see softer growth going forward.

But for all the industries that saw a downturn, others continued in the opposite direction. The capital goods industry had a “hefty pickup”, far exceeding the expectations set in the last quarter. For example, mechanical equipment saw a massive boost from the previous quarter with its output balance of change going from 22% to 36%. Electronics and electrical equipment also surged upwards. The weak Pound and low exchange rates are certainly factors in these stronger output figures.

It’s good news in the report on the employment front. The balance of companies taking on new workers is reported to be at its highest level for three years, after a second quarter of steady growth. This is good news, as investment in people is needed to help the UK to remain innovative.

Domestic vs export orders

UK orders have dropped on balance compared with the last quarter, but looking at the bigger picture, domestic sales are still doing well. In comparison to the situation over the last couple of years, orders are steady and robust across a wide range of industries, including mechanical and electrical equipment.

Export sales have been strong since the start of the year, and they are not dropping off yet. The overall recovery in global investment is showing in markets across the world, including the UK. However, this is likely to start to level out or even drop slightly over the coming months. The overall takeaway from this report is that the manufacturing industry is looking healthy and positive, especially in comparison to last year. Trends are likely to continue to hold steady and that is good news for all industries. We look forward to the Q3 report.