UK manufacturing has been battered by a summer long “rollercoaster of risks” from the global economy.
The latest third quarter manufacturing outlook survey from EEF and global law firm DLA Piper found that economic uncertainty in Europe, China and Greece was causing falling demand at home and abroad leading to “deteriorating” output and orders.
The balance of manufacturers reporting output growth has dropped to its lowest level since the end of 2009 and, at minus two per cent, contrasts sharply with previous expectations.
As a result, the EEF said it is halving its manufacturing growth forecast from 1.5 per cent to 0.7 per cent, down from 1.7 per cent at the beginning of the year – and is adjusting its GDP forecast from 2.6 per cent to 2.5 per cent.
The EEF also added that export orders in particular had suffered during the quarter falling to a six-year low in response to the continued problems in Europe over the summer and the slowdown in emerging markets.
Encouragingly, over a third of companies see signs of improving demand in Europe, the UK’s biggest export market. However the proportion of companies eyeing growth opportunities in Asia has fallen.
Domestic demand, for so long a beacon for UK manufacturing, has not, the EEF said, made up for falling overseas demand. The electrical and mechanical equipment and non-metallic minerals sectors acted as one of the biggest drags on output with the transport and electronics sector recording growth in output and total orders.
The EEF revealed positives could also be found in manufacturers’ investment and recruitment intentions – with a net six per cent of firms looking to hire during the next quarter and a balance of two per cent looking to increase investment.
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“While UK data has continued to point to solid growth, UK manufacturing is having to contend with a rollercoaster of risks from the rest of the world and the white-knuckle ride is starting to take its toll,” said EEF chief economist Lee Hopley.
“We’ve seen the future of the euro zone on the line once again, turbulence and uncertainty over China and Greece and, of course, oil and gas are still a concern. Against this backdrop it’s no surprise that confidence is faltering and UK manufacturers are feeling less optimistic about their growth prospects for next year,”
“However, it’s important to note that confidence has dipped rather than nose-dived and if the global drag lets up anytime soon then UK manufacturing should very swiftly get back into its previous stride. Industry and government must continue to work closely together to help offset the risks and support investment and innovation in the sector.”
Richard May, head of the manufacturing sector at DLA Piper, said: “As we start to edge towards the end of the year the outlook for the UK manufacturing sector is somewhat bleaker than at the beginning of 2015. The impact of an increasingly globalised economy, and of course manufacturing sector, is taking its toll as a result of recent turmoil in Europe and Asia and as concerns about global growth are mounting.
“Having said that, UK manufacturers are not battening down the hatches yet as, whilst business confidence has dipped, it does remain positive looking ahead. We can remain hopeful that prospects for the sector will pick up again.”
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