Manufacturing growth streak continues in spite of investment clouds
The British manufacturing sector has continued its strong run of form in the second quarter in spite of concerns over stalling investment, a survey to be published today will show, adding to hopes that growth will rebound after a miserable start to the year.
The balance of firms reporting an increase in output and orders fell but remained in positive territory, according to the figures from the EEF, the manufacturing body, and accountants BDO.
Both measures remain above their long-run average with a balance of 26 per cent seeing an increase in output and 23 per cent seeing more orders. The figures come after the latest purchasing managers index for the sector, published on Friday, saw an unexpectedly fast expansion in May.
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Manufacturing firms have enjoyed what the Bank of England described as a “sweet spot” since the post-EU referendum devaluation of sterling, as exports have become more attractive for foreign firms.
The continued positive performance for the sector, responsible for a tenth of British output, will add to economists expectations for a bounceback in the UKs overall GDP expansion in the three months to June, after output growth all but stagnated in the first-quarter at only 0.1 per cent. Economists expect a rebound, but are split over its extent.
Separate data published yesterday by the Confederation of British Industry point to an increase in British output across the whole economy. The business groups composite measure of growth across the distribution, manufacturing and service sectors, showed the balance of firms reporting a rise in output at 10 per cent in the quarter to May, up from only three per cent in the three months to April.
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The EEFs index measuring confidence in UK economic conditions in the next 12 months picked up to its highest reading since 2015, at 6.1, having fallen to almost 5.5 at the end of 2017, but firms became slightly less optimistic about the prospects for their own firms.
However, the business investment outlook is providing an “amber flashing light” for future growth, said EEF chief economist Lee Hopley.
Manufacturing employers still intend to increase investment over the course of the year, the survey found, but the balance of firms looking to increase investment fell to its lowest level in a year.
“The durability of this upturn is looking somewhat more fragile as many of the positive forces driving expansion last year such as a resurgent Eurozone, a surge in global manufacturing investment and the competitive pound are starting to fade,” Hopley said. “New or heightened uncertainties have also come into play, not least what feels like crunch time in the Brexit negotiations.”
Read more: Sterling falls as UK manufacturing growth dips to 17-month low
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