Manufacturers upbeat but less bullish on prospects

MANUFACTURERS’ bullish expectations at the beginning of 2014 have eased back, leaving firms cautiously confident as they head into 2015, according to a new study.

The annual EEF/Aldermore Executive Survey shows optimism has been tempered by a hefty dose of realism, with those expecting UK economic conditions to improve almost halving from 70% to 37% this year.
 
The survey comes as latest output data shows UK manufacturing activity hit a three-month low in December.

The Markit/CIPS Purchasing Managers’ Index was at 52.5 for the month, compared with 53.3 in both October and November. As the figure remains above 50 it suggests the sector is still growing.

Nevertheless, December saw the slowest output growth for a year-and-a-half.

Within the Eurozone, the figure was 50.4, indicating the worst growth in the sector for more than a year.However, overall UK manufacturing activity was strong in 2014, it said.
The EEF study shows the number of manufacturers expecting conditions in the UK to deteriorate has tripled, rising from 5% in 2014 to 17% this year.
However, global economic conditions are of greater concern for manufacturers – 38% expect them to take a turn for the worse in 2015 (compared to just 5% at the beginning of 2014).
 
But despite the more pessimistic economic outlook, there is some good news too. Seven in 10 manufacturers (70%) say the UK will be a competitive location for them in 2015. They are also confident that their staff numbers, sales, margins and productivity, will be heading in the right direction with those expecting an increase in these core measures consistently outstripping those expecting a decline.
 
Almost the same number (69%) expect to improve productivity, while 58% expect to boost UK sales. Just under half (49%) expect to be taking on more permanent staff.
 
Export sales also look positive – albeit expectations are down on last year. Just under half of manufacturers (49%) expect to see an increase in 2015, while 30% expect sales to remain steady. The hotspots for export growth are expected to be North America, Asia and South America while, in line with ongoing economic and geo-political uncertainty, manufacturers see Europe and the Middle East as ‘not spots’.   
 
In fact, geo-political risks are a key concern for many manufacturers – 59% say that an escalation would be detrimental to their company’s prospects in 2015. Outside of this, manufacturers see rising input costs (45%), significant shifts in exchange rates (35%) and upward pressure on pay (29%) as the top risks to growth for their individual companies.  
 
With all these factors on the horizon, the jury is out over whether 2015 will be a year of risk or opportunity. While a third of manufacturers (35%) see more risks than opportunities for their business in the year ahead, these are exactly matched by those who don’t (35%).
 
They are, however, agreed on what the year ahead means for activity.

Manufacturers’ top priorities in 2015 will be improving marketing and branding (46%), launching a new product or service (44%) and consolidating UK activity (36%). 2015’s focus will be on consolidating rather than speculating, with riskier expansion activities way down on their list of priorities.

This explains why, despite the more pessimistic outlook, a stronger than average 2% manufacturing growth is forecast for 2015 – down from last year’s 3.5%, but still strong.