Yes – manufacturing off to a good start in 2018q1
Output balance remains firm, though eases from multi-year highs
UK demand improves from more subdued end to 2017
Global growth continues to support demand for UK exporters
Employment balance holds well above long-run average at the start of 2018
Firms of all sizes report positive investment plans for the year ahead
In the past three months trading conditions for UK manufacturers have remained buoyant with our survey, in partnership with BDO, showing a positive balance of companies experiencing rising production volumes and increased orders. While the output balance has edged down from its multi-year highs last autumn, responses are still far, far above the long run average of the survey.
For much of the past year we’ve been highlighting the improving momentum across global manufacturing and have attributed that to much of the recent success for the sector at home. This trend continues to hold. Export demand is firm and only 15% of respondents are unable to identify any overseas market with improving demand prospects.
This is also feeding through to domestic supply chains, with the UK orders balance closing the gap somewhat.
Not quite everything, everywhere
While much of that picture has changed little compared with three months ago, there is a shade more sectoral variation in performance this quarter.
Starting with what is the same – capital goods sectors are still roaring. This has been confirmed by really strong output and orders balances in sectors such as electronics and mechanical equipment.
At the other end of the spectrum is basic metals, which registered a net decline in output in the past three months, though companies are expecting to see an improvement in the coming quarter. Our survey period wouldn’t have captured any concerns about US moves to impose tariffs on imports of steel and aluminium, but we’ll be watching closely for any ill-effects in the coming quarters. Rather there is some seasonality in the data and weaker demand from customers in the construction sector.
This construction related weakness is also apparent in metal products. Performance has been, on balance, positive over the past three months, but output and orders are trailing other sectors due to its exposure to construction and automotive.
Price rises are coming
Also new this quarter is a strengthening in price balances over the past three months; a trend that is forecast to persist into the middle of the year.
Inflationary pressures had been easing through 2017 as the effects of Sterling’s depreciation faded. But a pick-up in commodity prices and capacity pressures are seeing manufacturers pass on cost increases to customers. The buoyant demand outlook is making this pass through somewhat easier, helping to rebuild margins across the sector.
The future continues to look bright
So, it’s been a largely positive start to the year and the forward-looking responses in our survey, together with the indications of confidence over the longer term lead me to predict that three months from now we’ll be looking at a similar picture.
And our forecasts confirm growth ahead – this year and next
…Unless… well it seems there are a few potential bumps in the road. Or should I say Trumps in the road. One of the key developments is the US picking up the firing gun on a trade war with … well …everyone. This would put the brakes any global manufacturing upturn.
However, if we navigate this, the Italian election outcome, the build-up of Chinese debt and the UK government delivers the promised clarity on Brexit later this year, together with the critical transition period, then 2% growth for manufacturing looks possible this year, continuing at a more modest 0.6% pace in 2019.
Check back later in the week for more detail on our forecasts and an update on how we see the sector picture.