West Midland manufacturers confident for Q4 but exports could dent prospects

WEST Midland manufacturers appear at odds with the rest of the UK by maintaining strong growth and optimism for the remainder of the year.

Latest data from the EEF/BDO Manufacturing Outlook survey shows manufacturers in the region surpassed order book targets, with many forecasting a further increase in output during Q4.

The survey tends to suggest that despite a more difficult trading environment overseas business performance in the West Midlands has remained positive.  

The survey comes as the latest national PMI shows growth in the manufacturing sector slowing, with both new orders and output increasing less rapidly.

The PMI for August shows a figure of 52.5, down from 54.8 in July and its lowest reading for 14 months.

Markit, which compiles the index, said the slowdown was broad based with new jobs, export orders and new business all weakening.

The EEF survey, which deals with the situation regionally, shows that a balance of 10% of manufacturers in the West Midlands reported an increase in output during Q3. A further 29% have seen growth in order books – a significant improvement on the predicted balance of 14% when manufacturers were asked three months ago.

In Q4, output is set to rise for a balance of 21% of firms with orders holding steady for a balance of 19%, indicating positive performances can be expected in 2015. Supporting this level of confidence, regional companies have bolstered recruitment intentions to a balance of +24%, compared to -3% just three months ago.  

However, much could depend on what happens to exports.

EEF said demand was now more uncertain than for some time. It said with the Eurozone economy flagging significantly, political risks increasing and a stronger Sterling exchange rate, export orders UK-wide were turning negative for the first time since the start of 2013.

Richard Halstead, Midlands Region Director at EEF, said: “Growth in manufacturing remains positive in the West Midlands, although confidence is understandably starting to return to more moderate and sustainable levels as the pent-up demand which built up during the recession begins to expire.

“However, there are clearly increasing downside risks overseas which could threaten the pattern of growth going forward. In the face of this, while politicians may be focused on next year’s election it is critical that efforts over the rest of this parliament remain focused on sustaining growth across manufacturing and the economy.”  

Tom Lawton, Birmingham-based partner and Head of Manufacturing at BDO, said the manufacturing base could not insulate itself from global market conditions. On a more positive note, he said growth in the region remained positive and long-term investment felt “realistic at these levels”.  

The results also delivered good prospects for the local jobs market, he added.

Mike Rigby, Head of Manufacturing at Barclays, said growth in the sector was now at a more controlled level than had been seen so far this year.  

“Although there is still a confident buzz amongst manufacturers, the fragility of a recovery which continues to rely heavily on consumer spending is still an underlying cause for concern,” he said.

“A much-needed boost in export orders is yet to materialise but is becoming increasingly important if the UK manufacturing recovery is to rebalance and become more sustainable.”