New Survey Adds Weight To Confidence In Sector

SMEs in the manufacturing sector have been given further reasons to feel upbeat about the outlook for the sector, following another survey indicating a very positive prospect for more growth.

The EEF quarterly survey found that manufacturing output has continued to rise in the second quarter of 2014, while the output prospects looking forward are the strongest since 2007. Growth is being driven by strong domestic demand, but there are also expectations that exports will soon be picking up as well.

As a result, firms of all sizes are more confident and this is spurring more investment and recruitment. 

The forecast for manufacturing growth and overall gross domestic product (GDP) has also been raised, with the sector expected to expand by 3.6 per cent over the course of 2014, compared with the first quarter prediction of 2.7 per cent. The projected overall GDP increase has been raised from 2.6 per cent to three per cent.

Improved indicators included the balance of output rising from plus 22 to plus 26. Forward-looking output balances were up from plus 29 per cent to plus 34 per cent. A positive balance of 32 per cent of firms expect increased orders in the next three months.

EEF chief economist, Ms Lee Hopley said: “There is a definite sense of confidence amongst manufacturers, reflected in a range of recent data releases and the continuing strong positive balances in our latest quarterly survey. This should help sustain broad-based growth across the UK.

"Given that manufacturers’ investment plans have been hovering near record highs for several quarters, industry has likely been a significant contributor to the recent recovery in business investment."

However, she added, while there is optimism about an improvement in export demand, there is sufficient "uncertainty" about the world economy at present for this to be far from inevitable.

While that caveat adds a note of caution, the survey does add weight to the evidence of other polls showing the sector performing well.

Last week, the Markit/CIPS Purchasing Managers Index for manufacturing showed continued strong growth, with a reading for May of 57.

Its data for overseas trade was more positive than the EEF findings, indicating a 14th consecutive monthly rise in export orders.

Expert Opinion

This is the second research in a week to point to further growth in confidence in the manufacturing sector, which indicates that businesses of all sizes in the sector are in a good shape and are keen to begin further recruitment and investment. <br/> <br/>"Such developments are of course very welcome, but it is always important for smaller companies in particularly to bear in mind potential growing pains and prepare well for the challenges they could face as they look to take their operations to the next level. <br/> <br/>"A particularly issue that small firms need to consider is access to legal advice, as access to the right expertise from people who understand the obstacles that SMEs can face is a crucial step towards success." Fergal Dowling - Partner