A recent survey has revealed that UK manufacturers are enduring a difficult end to the year as a result of “gathering gloom” from the global economy.
The findings, published by EEF, the manufacturer’s organisation, and law firm, DLA Piper, suggest that there is “significant weakening” across most of the major components of the survey, confirming that after a big step forward in growth terms in 2014 industry has taken a step back in 2015.
It says concerns about world trade growth and the weakening demand from both developed and emerging markets have become more prominent, with a decline in export orders and rise in the proportion of companies unable to pinpoint any parts of the world experiencing an improvement in demand conditions.
Closer to home, the domestic market is also looking “considerably less supportive” than has been the case in recent years, it suggests, although some bright spots remain, in particular motor vehicles, aerospace and chemicals.
“The prospect of manufacturing contributing to growth in the UK economy this year has all but faded away with another disappointing set of indicators from our survey. The downbeat mood may not be universal across all industry sectors, but it certainly seems to be spreading as the challenges have mounted through this year – from the collapse in the oil price, slower world trade growth and weaker than expected construction activity,” explained EEF Chief Economist, Ms Lee Hopley.
“The fact that this is contributing to manufacturers pulling back their employment and investment plans adds to the concerns about the sector going into next year. While the Chancellor’s recent Spending Review will have been seen as supportive to industry, it is critical that the government continues to act to ensure the UK is a competitive location for manufacturing.”
Output and orders balances fell sharply in the last quarter, to -12% and -19% respectively. The fall in the output response pushed balances to their lowest level since the third quarter of 2009, although EEF stressed it is not comparing conditions now to the depth of the financial crisis. A more useful comparison is the sharpest quarter on quarter decline since 2014 q3, when the collapse in the oil price first started to impact.
The fall in orders was concentrated in both the UK and export markets. UK orders which have supported demand in previous surveys continued to be hit by the decline in the oil & gas industry.
Growth is expected to be muted in the next three months, says EEF, with forward looking balances showing little improvement. UK orders recorded a balance of -5% and export orders a balance of -9%. The lack of growth prospects in export markets is especially marked with almost 60% of companies seeing no notable improvement in any major world market over the last quarter. While the slowing growth in China is well documented, the fourth quarter was marked by a waning of confidence on European markets, with improvements in previous quarters proving a false signal.
However, the survey is not entirely negative as the divergence in sector performance continues. Consumer facing sectors in the UK such as motor vehicles and food and drink continue to do well, while motor vehicles and chemicals remain bright spots in the US and Europe.
The one positive which has been consistent in the survey in recent years is the resilience of investment and recruitment intentions despite fluctuations in our other key indicators. However, the gloomy outlook has finally taken its toll on the balances with both indicators turning negative to -3% and -7% respectively for the first time since the 2010q1.
As a result of the weakening position EEF has revised down its forecasts for manufacturing for this year and next. Manufacturing is forecast to contract by 0.1% this year and recover slightly to grow by 0.8% in 2016. EEF is forecasting GDP growth of 2.4% in 2015 and 2.1% in 2016.