A global list of economic woes – including uncertainty in Europe, China and Greece – is casting a shadow over UK manufacturing.
However, Yorkshire and Humber manufacturers appear to be riding out the storm and are so far looking relatively unscathed, according to the latest Q3 Manufacturing Outlook survey from EEF, the manufacturers’ organisation, and DLA Piper, the global law firm.
A ‘rollercoaster of risks’ from the rest of the world has led to a deterioration in all of UK manufacturing’s key indicators and most notably in output and orders, where falling demand at home and abroad is taking its toll. The balance of manufacturers reporting output growth has dropped to its lowest level since Q4 2009 and, at -2%, contrasts sharply with manufacturers’ expectations.
However, in Yorkshire and Humber manufacturers are seeing a better picture. Q3 output has far outstripped manufacturers’ expectations, with a net 21% of firms seeing an increase. There’s even better news for the three months ahead with a balance of 37% of the region’s manufacturers expecting output to increase – higher than any other region in the UK.
Across the UK, export orders in particular have suffered, edging down again to hit a six year low in response to continued problems in Europe over the summer and the slowdown in emerging markets. But here again, Yorkshire and Humber’s manufacturers have a more positive story to tell. On balance, 19% have seen an increase in total orders over the last three months, while a net 25% predict the same for the next quarter.
Manufacturers’ employment intentions in the region are also holding up, both in Q3 and looking forward to Q4. There is also positive news on the investment front where, on balance, a quarter of the region’s manufacturers (25%) expect to be increasing investment in the year ahead. This is in contrast with the national picture where manufacturers’ investment intentions are just about hanging onto positive ground.
Nationally domestic demand, something of a beacon for UK manufacturing in the past couple of years, is not making up for falling overseas demand. And this, combined with the impact of global factors, has served to bring forward looking indicators back to earth with a bump.
Against this backdrop it is not surprising that confidence levels across manufacturing are starting to suffer. Looking ahead to 2016, optimism about the wider UK economy’s growth prospects remains fairly stable, but manufacturers are feeling less upbeat about their own growth prospects and this is reflected by the confidence indicator edging down a notch again.
Based on the findings, the current economic outlook and recent weaknesses in official data, EEF is halving its manufacturing growth forecast from 1.5% to 0.7% (down from 1.7% at the beginning of the year) and is adjusting its GDP forecast from 2.6% to 2.5%.
Andy Tuscher, Yorkshire and Humber Region Director at EEF, said:
While UK data has continued to point to solid growth, manufacturers – including many from this region – are having to contend with a rollercoaster of risks from the rest of the world. Unfortunately, in many areas the white-knuckle ride is starting to take its toll, although most firms in this region are currently looking relatively unscathed.
We’ve seen the future of the Eurozone on the line once again, turbulence and uncertainty over China and Greece and, of course, oil and gas are still a concern. Against this backdrop it’s no surprise that confidence is faltering and UK manufacturers are feeling less optimistic about their growth prospects for next year.
However, it’s important to note that confidence has dipped rather than nose-dived and if the global drag lets up anytime soon then UK manufacturing should very swiftly get back into its previous stride. Industry and Government must continue to work closely together to help offset the risks and support investment and innovation in the sector.
Richard May, partner and Head of the Manufacturing Sector at DLA Piper, said:
As we start to edge towards the end of the year the outlook for the UK manufacturing sector is somewhat bleaker than at the beginning of 2015. The impact of an increasingly globalised economy, and of course manufacturing sector, is taking its toll as a result of recent turmoil in Europe and Asia and as concerns about global growth are mounting.
Having said that, UK manufacturers are not battening down the hatches yet as, whilst business confidence has dipped, it does remain positive looking ahead. We can remain hopeful that prospects for the sector will pick up again.