EEF downgrades manufacturing growth forecasts for both this year and next

MANUFACTURING organisation EEF has downgraded its growth forecasts for both the economy and the manufacturing sector for 2016 and 2017.

It said while activity levels remain largely unchanged from the second quarter, manufacturers’ confidence about future prospects for the overall UK economy had taken a knock.

The only bright spot on the horizon is the continued success of the UK automotive sector – which bodes well for the West Midlands.

The region’s reliance on the sector is having a beneficial effect both for OEMs and the firms that supply in to them.

So, while the majority of Britain’s manufacturers are seeing a mixed picture which will delay the prospect of a return to stronger growth until the end of the year, in the West Midlands the picture is much different.

Such is the health of the automotive sector that output in the region increased 20% during the last quarter and the prospects for the next three months are also positive with the balance of those firms expecting growth and those that aren’t coming out at +27%. Companies in the West Midlands are also intending to hire more workers with a balance of +7%.   

The situation is outlined in a new report published today by EEF in collaboration with BDO.

“Across the UK, while activity levels remain largely unchanged from the second quarter, manufacturers’ confidence about future prospects for the overall UK economy have taken a knock, leading EEF to downgrade its growth forecasts for both the economy and manufacturing for this year and 2017,” it said.
 
One factor which could have a beneficial effect is the weakening of the pound following the EU referendum.

EEF said the fall in the value of sterling and stronger demand from the EU, US and emerging markets was boosting exports. In fact, export orders have exceeded expectations by moving into positive territory during Q3 to +2% – the highest balance since Q2 2014.
 
Richard Halstead (left), Midlands Region Director at EEF, said: “Manufacturers’ confidence collapsed in the aftermath of the referendum, but our latest survey provides some relief that this has corrected.

“Signs of an export revival are helping to drive more optimism about activity in the second half of the year, but concerns about whether the UK economy can shrug off post-referendum challenges are still clearly evident.
 
“These risks are expected to hit some sectors, such as industries linked to investment goods and construction, harder than others. Despite the short-term outlook for manufacturing remaining broadly stable, the continued downward slide in investment plans should keep policy makers alive to the potential risks facing the sector.”
 
He said the Government needed to proceed quickly in developing an ambitious industrial strategy to make the UK an attractive proposition for future manufacturing investment. This would become even more critical once negotiations to leave the EU begin.
 
Tom Lawton, BDO’s Birmingham-based head of manufacturing, said: “While the outlook for the UK economy remains uncertain, manufacturers are more confident about their own business performance and it’s promising to see manufacturers in the West Midlands have experienced increases in output over the last quarter. This shows they believe there is a positive way forward from here and that Brexit might not have been the portent of recession.”