Manufacturers showing strong investment intentions

MANUFACTURERS are planning to invest across a range of areas in the next two years in an effort to boost productivity, according to a new survey.

The study, compiled by EEF and Lombard Asset Finance, shows manufacturers’ investment in the latest machinery has grown rapidly in recent years in order to keep up with rising demand and to make good on past cutbacks.

The research shows more growth in investment in machinery and equipment to come, but a slower pace of increase reflects a switch in focus to ‘intangibles’ such as training, recruitment, R&D, software and marketing in order to derive a competitive advantage.
 
While productivity is a major investment driver, the levels of new spending are being affected by confidence in the demand outlook, emerging capacity constraints and diversification into new business areas.
 
However, the study’s authors said growth scenarios in Europe could either boost or bust manufacturers’ capital expenditure plans for the coming years with a sustained recovery across the region pushing investment levels higher, while a break up would send growth into reverse for many companies.  
 
Lee Hopley, Chief Economist at EEF, said: “UK manufacturers’ on-going commitments to invest in technology, skills and innovation provide positive signals about the sector’s future growth and productivity prospects. Some of the barriers that companies’ investment strategies came up against following recession have clearly faded, but it’s vital that their current plans stays on track.
 
“Some sectors are facing some headwinds from more uncertain demand, but big questions about the future economic prospects for European partners present one of the biggest external risks to firms’ ability and confidence to press ahead with vital investment.  
 
“UK efforts to build solid policy foundations are still needed to support the efforts of investment-intensive and highly productive sectors – like manufacturing – if the UK economy is to return to a more sustainable and balanced path of economic growth.”
 
Ian Isaac, Head of Lombard, added that manufacturers continued to lead the way for the UK economy and they recognised that improved productivity was the key driver to delivering  ongoing and sustainable growth.

“It is particularly encouraging to see that over 95% of companies plan to invest in raising their productivity levels over the next two years. This strategy is echoed by Lombard’s own research which shows that increasing efficiency to drive productivity is a key element in manufacturers’ business investment plans,” he said..
 
The report demonstrates that manufacturing investment has recovered strongly since the financial crisis increasing by almost half. It also shows that manufacturers invest a high proportion of their output, almost one fifth of Gross Value Added (GVA) in 2014.  
 
Productivity is the key driver of manufacturing investment with 95% of companies in the survey spending to improve productivity in their business. The results show that manufacturers are broadening the areas of investment with intangibles continuing to gain in importance, with 28% of companies saying this was more important than investing in plant & machinery, up from 4% last year.
 
In line with this, almost three quarters of companies are planning to invest in workforce and management skills and a third plan to invest to boost innovation. Investing in plant & machinery continues to be a crucial target for productivity improvements in the manufacturing sector. Around 80% of manufacturers will invest in plant & machinery to improve their productivity.

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