Manufacturers in the South East & Greater London saw the delayed recovery finally arrive in the final quarter of 2016 with a much improved boost to output and orders, according to a major survey released by EEF, the manufacturers’ organisation and accountants and business advisory firm BDO LLP.
Publishing the Q4 Manufacturing Outlook survey and revised economic forecasts, 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.
According to the survey output in the South East & Greater London in the last 3 months increased by a balance of +23%, with a slightly stronger forecast for the next 3 months. New Orders for the next 3 months were at an equally strong level and, in line with this better picture prospects for employment were the best of any UK region.
Commenting, Jim Davison, EEF Region Director in the South East & 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.
“While confidence is back on the up, manufacturers are still cognisant of growth challenges in the near term. Brexit aside, global growth is not yet on the firmest of footings and, with volatile exchange rates also in the mix, UK manufacturers will need to continue to be nimble in their responses to emerging challenges and opportunities in the months ahead.”
Arbinder Chatwal, Director and Head of Manufacturing at BDO LLP in Southampton, said:
“Despite uncertainty at home and abroad, UK manufacturing is proving to be resilient. It is promising to see that five months on from the referendum, manufacturers in the region are reporting increases in both output and orders.
“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 profit margins for manufacturers, which will ultimately push up prices.
“Brexit means a period of challenge and vulnerability for the sector and businesses need stability and certainty in government policy if they are to continue to commit to the investment that the country needs to grow.”
