Manufacturing recovery boosted by upturn in investment, survey finds

George Osborne’s much-vaunted “march of the makers” appears about to get under way more than two years after the chancellor coined the phrase.

Manufacturers are ready to make huge investments in new technology and machinery after a rebound in output and orders in the last three months, according to a survey by the industry’s trade body.

The EEF found that investment intentions jumped to a six-year high in the last quarter as manufacturing businesses looked to benefit from an improving economy and greater stability in the eurozone.

The engineering employers’ group said all areas of manufacturing improved in the three months to the end of August, maintaining momentum from the spring, reports The Guardian.

Output expanded at the fastest rate for three years as manufacturers added jobs and looked ahead to expanding orders at home and abroad.

Lee Hopley, the EEF’s chief economist, said a strong performance by the car and power-generation sectors was now married to strong growth by steelmakers and engineers. Domestic growth outstripped exports with a balance for domestic orders of +20 per cent against +15 per cent for exports.

The chancellor suffered much jeering in the House of Commons in the months after his 2011 budget speech when he said manufacturing should lead the recovery and become the focus of new investment.

Almost immediately a nascent boom in output was snuffed out and the sector became a drag on GDP growth. Since last summer the services sector has proved the only reliable source of growth with manufacturing appearing to recover, only to fall back again. But since the spring a sustained recovery appears to be under way.

Hopley said: “Industry’s prospects have brightened considerably in the past few months and it’s particularly positive that this improving trend can be seen across all manufacturing sectors. There is growing confidence that improving trading conditions will continue into the final months of this year and then accelerate through the gears in 2014.”

However, she warned that investment intentions needed to translate into action for the recovery to continue: “While the signs of recovery that have emerged so far this year are positive, the need for better balanced growth from net trade and investment remains. As companies become more confident about their growth prospects, we need to see this translate into commitments to invest in new capacity, and for this to take place in the UK.”

The Bank of England’s interest rate setting committee is due to meet this week and is expected to keep its stimulus of low interest rates and £375bn of quantitative easing (QE) on hold on Thursday as it waits to see whether the recovery continues into the autumn.

With all sectors of the economy moving ahead, the nine-strong monetary policy committee (MPC), headed by governor Mark Carney, is split between members who consider the economy can recover without further stimulus and a minority who believe continued weakness in the banking sector favours an expansion of QE.

Analysts said the MPC is unlikely to act in its first meeting after having agreed to hold the stimulus package in place until unemployment falls to 7 per cent, which the Bank does not expect until 2016.

Hopley said a balance of 32 per cent of companies reported increased output, up from 12% in the last quarter and the highest since the beginning of 2010. The balance reporting rising orders also increased significantly, up to 27 per cent from 7 per cent in the last quarter.

“In contrast to the last few years where there has been clear sector divergence, the survey showed broad-based increases for all sectors, the first time this has happened for over a year,” she said. “The strongest positive output and orders balances were reported in electrical equipment, 42 per cent and 35 per cent respectively, and motor vehicles, at 44 per cent and 39 per cent,” she said..”