Manufacturers set to be warmed by delayed recovery in Q1 2017

MANUFACTURERS in the West Midlands will see the delayed recovery finally arrive in the first quarter of 2017 with a much improved boost to output and orders, new research has suggested.

The welcome announcement came in a major survey released today by EEF, the manufacturers’ organisation in collaboration with advisory firm BDO.
 
Publishing the Q4 Manufacturing Outlook survey and revised economic forecasts, EEF pointed to early signs that the sector has left behind the negative effects of the low oil price and concerns about global growth and is now seeing opportunities from a resilient UK market and brightening export prospects.
 
However, it is not all good news.

EEF has stressed that the picture is one of the sector regaining ground after a sluggish 18 months. While key indicators have moved back into the black, risks remain on the horizon, with some Brexit related and others potentially stemming from elsewhere in the world.

As a result, despite the improvement in conditions, EEF is still forecasting that manufacturing will contract in 2017.
 
Furthermore, EEF also pointed to inflationary pressures building and significant price rises in the pipeline, a factor likely to weigh down on domestic activity in the year ahead. Profit margins are also under considerable pressure and are likely to be squeezed further in 2017.
 
According to the survey, output in the West Midlands in the last three months increased by a balance of +20% whilst the next three months is set to see a slightly stronger performance. Employment and investment intentions in the region are remaining stable in line with this improving picture.

According to EEF, the West Midlands continues to benefit from the strong performance of the Automotive sector, which is feeding down through the supply chain.
 
Commenting, Charlotte Horobin, Interim EEF Region Director in the West Midlands, said: “This is the most upbeat reading on the state of manufacturing we’ve seen for some 18 months and signals the start of brightening conditions, which had been briefly knocked off course following the referendum.

“This anticipated turnaround can be attributed to a range of factors including the resilience, thus far, of the UK economy but also the strengthening of demand in a number of major markets. Critically, this should spur some new investment and recruitment activity to meeting fulfil new customer demands.”
 
However, she said while confidence was back on the up, manufacturers were still cognisant of growth challenges in the near term.  

“Brexit aside, global growth is not yet on the firmest of footings and, with volatile exchange rates also in the mix, UK manufacturers will need to continue to be nimble in their responses to emerging challenges and opportunities in the months ahead,” she added.
 
Tom Lawton, Birmingham-based partner and Head of Manufacturing at BDO in the West Midlands, said: “Despite uncertainty at home and abroad, UK manufacturing is proving to be resilient.

“The depreciation of sterling is helping manufacturers export more and they are seeing a steady increase in appetite from the EU and US. However, this is putting additional pressure on the cost of raw materials being imported and therefore profit margins for manufacturers, which will ultimately push up prices.
 
“Brexit means a period of challenge and vulnerability for the sector and businesses need stability and certainty in government policy if they are to continue to commit to the investment that the country needs to grow.”