Manufacturers prove quick to respond to demand upturn

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The Independent Online

Britain's manufacturers continue to defy the sluggish nature of the economic recovery, with a growing number of companies enjoying buoyant trading conditions over the past three months.

The manufacturing organisation, the EEF, and the accountancy firm, BDO, said their joint research showed that many manufacturers were seeing encouraging increases in demand from overseas markets, as well as a pick-up from domestic companies.

A report published by the EEF and BDO today suggests that the manufacturing sector's recovery is gathering pace more speedily than other parts of the economy.

The balances of manufacturers reporting increases rather than decreases in output and new orders during the past three months were 30 per cent and 34 per cent respectively, compared to 8 per cent and 2 per cent in the previous three-month period. The balance of those reporting raised demand from export markets was at 23 per cent, the highest on record, while the figure for domestic orders was 24 per cent, also a new high.

For the first time since the recession, more manufacturers now intend to recruit staff than not over the next three months, though there is some caution about capital investment plans, with many companies remaining nervous about the sustainability of higher demand and also the possibility of negative changes to the tax regime, with an emergency budget due in a fortnight's time.

However, a majority of companies remain positive about the outlook for the future, with a balance of 22 per cent firms expecting higher output, and 20 per cent expecting increased orders. The report forecast that the manufacturing sector would grow by 3.5 per cent both this year and next – well ahead of the rest of the economy.

A similar phenomenon has been seen following previous recessions, but the growth will encourage those who hope that the UK economy can be rebalanced, with less dependence on the services sector particularly financial services.

"The steadily improving trends in manufacturing look set to continue in the coming months, and the upswing is being felt right across industry – manufacturers are pulling in more export orders on the back of a recovering world economy, and a better outlook for the domestic market is giving companies some confidence to recruit again," said the EEF's chief economist, Lee Hopley.

"But manufacturers are very aware that economic headwinds could still pick up again ... Great importance is now being placed on the need to rebalance the UK economy. In the short term, this requires a budget that delivers tax reform and deficit reduction in a way that provides some stability."

Tom Lawton, head of manufacturing at BDO, added: "Manufacturers are now indicating that they want the government to deliver in five key areas: deal with the deficit; establish an environment that allows manufacturing to be competitive; provide specific support to mid-market manufacturers; and create and support investment in emerging technologies, but without forgetting the needs of the traditional manufacturer."