West Midlands manufacturing sector outstrips the rest of the UK in Q1
UK manufacturing enjoyed a strong start to 2017 – with the West Midlands beating national trends, a new report has said.
In its Q1 2017 Manufacturing Outlook, EEF said the strong start to the year even defied firms’ own expectations and provided a much-needed boost to confidence, recruitment and investment.
The latest quarterly survey reports positives across all the sector’s key indicators with performance in vital areas, such as output and orders, smashing all expectations. Across the UK, the balance of firms reporting an uplift in output (31%) and orders (29%) is double what was expected, with the output balance hitting its highest level since Q3 2013. Importantly, all of UK manufacturing’s sectors are seeing this positive trend.
This positive picture is reflected – and even exceeded – in the West Midlands where output this quarter has outperformed manufacturers’ high expectations. A balance of 44% of firms have seen output grow, almost matched by those seeing their orders expand (43%). In fact, when it comes to order books, West Midlands manufacturers are leading the way, outpacing all other UK regions.
The same is true of employment where a balance of 30% of firms in the region have been recruiting staff – far higher than anticipated and again the highest balance of any region. And there is a similar tale to tell on investment intentions, which are far better than predicted and joint highest in the UK.
Looking ahead to the next quarter, West Midlands manufacturers expect the positive trend to not only continue but to pick up pace. A record balance of 60% of firms expect orders to balloon, closely followed by those expecting output to increase (54%). Employment intentions are also expected to hold up well.
Tom Lawton, partner and head of manufacturing at BDO in the West Midlands, said: “The UK manufacturing sector again proves to be remarkably resilient with Q1 performance exceeding expectations – providing a much-needed boost for our economy.
“Increases in demand and confidence are providing the right environment for manufacturers to invest and it is promising to see investment indicators in positive territory.
“However, businesses need stability and certainty in government policy if they are to continue to commit to significant capital investments. Therefore, it is critical that the Government builds an industrial strategy over the long-term (15 to 20 years), avoiding the disruptions of the political cycle.”
Elsewhere, BDO’s latest Business Trends Report suggests a fall in consumer spending and high inflation is slowing growth in the UK economy.
The report suggests that rising inflation, coupled with stagnating wage growth, is causing a sharp slowdown in consumer spending, leaving the UK economy in need of other areas of growth.
It suggests consumer spending has been a significant contributor to the UK economy’s growth since the financial crisis, particularly in 2016, although the UK could no longer rely on household expenditure for growth.
BDO’s Inflation Index is well above its long-term trend, despite falling from 104.5 to 104.0. The accountants said figures reinforced the Bank of England’s prediction that consumer prices were set to rise over 2% this year.
Firms’ employment intentions – indicated by BDO’s Employment Index – remain above the long-term trend, with the Index sitting at 101.9 for the second successive month. However, despite low unemployment levels, the UK’s on-going productivity problem is causing low wage growth as firms look to employ more staff, rather than investing in the productivity of their existing workforce. Wage growth is likely to soon fall behind inflation, leaving households with less money to spend.
The confidence of the UK’s manufacturing sector remains buoyant, however, with both its Optimism Index – which indicates how firms expect their order books to develop in the coming six months – and its Output Index – which indicates how businesses expect their order books to develop in the next three months – rising to 102.2 and 105.1 from 96.4 and 97.7. It concludes the sector has really benefited from the currency depreciation with exports rising up to 4% since sterling’s fall.
Commenting, Richard Rose, Midlands Lead Partner, BDO, said: “Alarming signals for the UK economy are emerging ahead of a defining moment for the country. Households are having their purse strings tightened by slow wage growth and rising inflation, which means that consumer spending won’t play the major role in 2017 that it did last year. So the government must do more to support the economy and position it for growth in these uncertain times.”
