South East: Manufacturing growth eases amidst uncertainty overseas, says EEF/BDO survey

Manufacturers in the south are reporting steadier growth with more moderate and sustainable long-term levels, according to the latest quarterly survey published by EEF, the manufacturers’ organisation, and accountancy and business advisers, BDO LLP.

According to the EEF/BDO Q3 Manufacturing Outlook survey, output, orders and employment balances remained positive across the south in the third quarter. However, looking ahead to Q4 2014, there are contrasting fortunes for South East and South West manufacturers.

In the South East, output and order balances are set to continue to grow to 50% and 30% respectively in Q4. Meanwhile in the South West, total orders are expected to fall into negative territory next quarter for the first time since in two years.

Across the south recruitment intentions, although less bullish, remain positive for the final quarter of the year. A balance of 10% and 6% of companies expect to increase headcount in South East and South West respectively.

Of concern for manufacturers is the stability of overseas markets. With the eurozone economy flagging significantly, political risks increasing and a stronger sterling exchange rate, export orders UK-wide have turned negative for the first time since the start of 2013.

Jim Davison, EEF region director, said: “Growth in manufacturing remains positive but is now understandably returning to more moderate and sustainable levels as the pent-up demand which built up during the recession begins to expire.

“However, there are clearly increasing downside risks overseas which could threaten the pattern of growth going forward. In the face of this, while UK politicians may be focused on next year’s election it is critical that efforts over the rest of this parliament remain focused on sustaining growth across manufacturing and the economy.”

Arbinder Chatwal, director and head of manufacturing at BDO in Southampton, said: “The continuing trend of strong business performance is welcome news to our regional economy and jobs market.

“Manufacturers have successfully ridden out the economic storm of the past seven years so they understand how to effectively balance investment against expectations. We talked to a number of manufacturers earlier this year as part of our Central South Mid Market focus on international expansion.  Understandably, there is nervousness surrounding overseas market so a strong recovery in exports this year is still uncertain. My concern is that companies will use that as an incentive to focus investment on domestic markets, which is not where long-term sustainable growth will lie.”

Looking ahead, while EEF expects continued expansion over the second half of this year and into 2015, the unexpectedly sharp slowdown in the pace of output growth in Q2 2014 has led to a slight downgrading of the forecast for full-year growth to 3.3%, from 3.5% previously. 2015 will see a moderate deceleration in the annual rate of manufacturing growth to 2.1%.