Manufacturers out of recession but still uncertain

Rising demand for British manufactured goods is improving confidence in the immediate future, but investment plans are still being scaled back in response to continued uncertainty about the longer term.

Both the manufacturing and engineering sectors came out of recession at the end of last year, and the recovery has continued into the first quarter of 2010, the quarterly manufacturing outlook from the EEF, an industry group, will show today. Both output and orders were positive for the first time since the third quarter of 2008, with a knock-on improvement in employment prospects. Only 6 per cent of companies are still laying off staff, compared with 40 per cent in the second quarter of last year.

But although companies' assessment of the prospects for the next three months is the most upbeat since mid-2007, the vast majority of the growth is from exports favoured by the weak pound.

Underscoring the fragility of any recovery is the weakness of investment. The majority of companies report that they are scaling back investment plans for the seventh consecutive quarter.

"We are starting to the see the makings of an export-led recovery but prices and margins remain under pressure," Lee Hopley, the chief economist at the EEF, said. "There are more orders now coming through, but there is also an almost infinite list of uncertainties about the future."

One major uncertainty facing the economy is the condition of the housing market. Hometrack report an increase in the numbers of buyers and sellers, after a lull in December and January, though by less than the usual boost. Prices picked up by 0.3 per cent, against the 1 per cent drop announced by Nationwide last week. As elsewhere in the economy, prospects will depend on how quickly the budget deficit is cut.