NW manufacturers see toughest trading conditions in nearly 3 years– EEF/BDO survey

Over the past quarter the UK’s manufacturers have seen some of the toughest trading conditions since the end of the recession, according to a major survey released today by EEF, the manufacturers’ organisation and business advisers BDO LLP.

In response to EEF & BDO’s previous survey (6 June 2012) manufacturers had anticipated some softening in output, but the survey showed a more marked weakening than expected across a range of indicators. The balance of responses on output over the past three months fell to its lowest level since 2009q4.

Key NW findings:

Output and order balances came in lower than expected in the third quarter of 2012. A balance of 5% and 15% of manufacturers’ reported output and orders had increased respectively, down from 29% and 27% last quarter.

Manufacturers’ margins came under growing pressure over the past three months with a balance of 19% reporting a deterioration in export margins and 24% seeing a further squeeze on margins on UK sales.

The balance of responses on investment intentions remains positive, but at 5% down on the previous quarter.

Recruitment intentions remained strongly positive, continuing the trend seen since the beginning of 2010, with a balance of 23% of companies indicating they increased their employment. This was greatest amongst small firms.

Looking forward, output expectations for the next three months have picked up from last quarter. A balance of 16% and 11% of manufacturers expect output and orders, respectively, to grow in the next three months.

Following the sharp contraction in manufacturing output in the first half of this year, our forecasts have again been revised down. A contraction of 1.5% is now expected in 2012, with the sector regaining some ground with the growth of 1.5% in 2013. The corresponding figures for GDP are -0.2% and 1.4%.

Commenting, David Ost, North West Director of EEF, the manufacturers’ organisation said:

“The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey. Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to UK manufacturers and also our economy’s reliance on exports as a source of growth.

“However, some positive news can be taken from the improvement in the short term outlook and the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term.

“It’s encouraging to see that companies are not planning for a further deterioration in conditions as we head into the final months of the year. But, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”

Philip Storer, Partner at BDO in Manchester, said:

“The results of the survey paint a dark picture with weakening markets across the board. Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter. With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.

“However, it is not all bad news. Larger companies that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent. All of this in the face of worsening market conditions. This indicates that manufacturers have learnt the mistakes of the past, are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”