Manufacturing will grow at a slower rate next year than in 2011 but will continue to outpace the economy as whole, according to the latest figures from manufacturers' organisation the EEF.
The EEF forecast in its latest outlook report on the industry that the manufacturing sector would grow by 2.2% next year, ahead of GDP growth of just 2%. Engineering would do rather better, growing by 3.8% in 2012.
EEF chief economist Lee Hopley said that the spectacular rebound of the industry in 2010 – when manufacturing grew by 3.6% and engineering by more than 8% – was unlikely to be repeated in the foreseeable future, because the sector was bouncing back from an extremely low base caused by the global financial crisis.
Despite the more modest prospects for growth, the EEF's quarterly trends survey indicated that output and orders were still growing for most manufacturers surveyed. This followed a difficult second quarter in which the additional bank holiday and Japanese earthquake and tsunami took their toll, sending the sector into contraction. In the third quarter, however, a balance of +27% of companies reported increased output, with orders not far behind, at +23%.
The EEF data stand in stark contrast to the negative headlines generated by the latest Markit/CIPS survey on manufacturing which found that output, new orders and employment had all declined in August – the period when the EEF surveyed its sample of more than 400 manufacturing companies. According to Markit/CIPS, new export business had also fallen at its fastest pace since the tail-end of the recession in May 2009. The UK manufacturing purchasing managers' index, a barometer of industry health, fell to a 26-month low. Stephen Tetlow, chief executive of the IMechE, said last week: “This is deeply worrying news for British manufacturers, meaning we are getting further and further away from the rebalanced economy that the government, and the public at large, are calling for.
“To reverse 30 years of neglect by successive governments is no easy task, but the coalition needs to urgently reform this country’s tax and lending regime to turn the UK into a world-leading destination for manufacturing investment.”
Hopley acknowledged the sector was facing challenges, including a potentially treacherous economic environment globally and in Europe due to debt crises, the burdens of environmental legislation and climate change policy at home, and the need for deregulation. “There needs to be a continual focus on getting these things right throughout the life of this parliament,” she said.
But she added: “Companies are still busy and output is growing. They are cautiously optimistic.”
Sectors that are doing well include the hard-hit car industry and civil aerospace. Metals and electronics firms are struggling, however, the EEF said, and defence companies are feeling the impact of spending cuts.