According to the Manufacturing Outlook, a major survey released by EEF, the manufacturers’ organisation, and BDO LLP, the accountants and business advisory firm, manufacturers in the South East and Greater London saw the delayed recovery finally arrive in the final quarter of 2016. Output in these areas in the last three months increased by a balance of +23%, with a slightly stronger forecast for the next three months.
New orders for the next three months were at an equally strong level and, in line with this better picture, prospects for employment were the best of any UK region.
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, EEF stressed that the picture is one of the sector regaining ground after a sluggish eighteen months. While key indicators moving back into the black is a positive development, risks remain on the horizon, 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.
Jim Davison, EEF region director in the South East and Greater London, said: “This is the most upbeat reading on the state of manufacturing we’ve seen for some eighteen months and signals the start of brightening conditions for manufacturing, 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.”
Arbinder Chatwal, director and head of manufacturing at BDO LLP in Southampton, said: “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 on profit margins for manufacturers, which will ultimately push up prices.