South East: Region holding up better than most during referendum uncertainty, says EEF

The second quarterly EEF Manufacturing Outlook survey this year shows that the sector’s slide into negative territory has come to a stop, and that after hitting a low point at the end of 2015 industry is slowly turning a corner despite the fact that output and orders are still not in positive territory, and that investment intentions have slipped slightly. The crawl back to growth is against a backdrop of uncertainty with the EU referendum just one factor in the mix. But good news for the South East is that here the picture is more positive than elsewhere in the UK.

 

In the South East, total orders remain firmly in positive territory with 39% of firms seeing an increase this quarter. Looking ahead, this positive trend looks set to continue with 40% of firms expecting an increase in orders over the next quarter. The indications from the region are similar on output. This quarter 32% of firms have seen output increase, a figure exceeded only in Wales; and output looks set to remain strong in the second half of the year with 30% of firms expecting output to increase.

Manufacturers’ employment intentions in the region are also a bright spot, with 32% of firms on the recruitment trail this quarter, far higher than anywhere else in the UK. This buoyant mood looks set to falter slightly into the second half of the year, with only 23% of firms expecting to be on the hunt for new staff.

Investment intentions over the next 12 months look set to strengthen slightly, with a net 15% of firms in the South East expecting to be investing – up from 4% in Q1 this year. 

Jim Davison, South East region director at EEF, said: “Demand conditions continue to head in the right direction, but local manufacturers’ path to sustainable growth is still being challenged by sluggish global growth and subdued investment at home.

“Some sectors continue to buck this trend, with chemicals and transport continuing to perform strongly. Furthermore, signs that the massive issues facing the mechanical and metals sectors are bottoming out bode rather better for growth in the second half of the year. These expectations will need to be realised before a bounce back in investment plans follows suit.

“While we’ve got some weaker readings in the domestic market and softer confidence levels amongst smaller companies, it’s difficult to unpick any referendum effect with any certainty – it’s just one factor in a mix of uncertainty. However, based on these findings and assuming the UK votes to remain, we expect manufacturing to remain broadly flat in 2016 for the second year running.”  ///

Across the UK by contrast, the story is one of a weaker than expected performance. This quarter is the fourth consecutive one in which a net balance of manufacturers have seen output decline and persistent weakness, particularly in the domestic market, weighed on orders. Ongoing effects of the cutback in oil and gas investment and the steel crisis, as well as possible uncertainty from the forthcoming EU referendum are weighing on the sector’s domestic prospects, while the persistently difficult world economy is not supporting exports either.

Critically, the forward looking indicators are more positive for the second half of the year, although manufacturers appear to be working on the assumption that the UK will choose to remain in the EU and that other factors holding back growth will continue to wane.