Manufacturing to lead UK economy back to growth

The UK manufacturing industry is expected to outperform the rest of the economy this year but there will be some impact on the sector from government’s spending cuts, according to research from EEF.

The manufacturing trade organisation surveyed its members for its Economic Prospects 2011 report and found that manufacturers expect solid growth in export orders this year, particularly to emerging markets, which will improve the UK’s overall net trade position. Investment is also set to improve this year.

All areas of manufacturing look set for growth but the best performers are tipped to be the mechanical engineering and metal products sectors, as they have exposure to export markets with strong demand.

Last year, the manufacturing sector outpaced the overall economy, expanding by 3.8%. This year, 3.5% growth is forecast for manufacturing compared to 2.1% growth for the economy as a whole. In 2012, growth is forecast at 3% and 2.6% respectively.

EEF Chief Economist, Ms Lee Hopley, said the manufacturing industry far outperformed expectations last year, delivering its best performance in 16 years despite expectations of modest growth at best.

However, she warned there are continuing risks to growth both in the UK and overseas.

“To maintain momentum the government must keep its foot down on policies to accelerate growth,” she said. “The fact that the UK is now on the road to recovery will not necessarily make the job easier and the forthcoming Budget will offer the first major point in the year when this resolve to clear away obstacles to growth must be demonstrated.”

This is demonstrated by a separate survey from EEF in which one in five manufacturers said they expect direct impacts from government spending reductions and two in five said problems could arise in their supply chains.

High inflation could pose problems, with EEF forecasting the January VAT rise will entail that the Bank of England’s 2% inflation target will be exceeded this year.

Access to finance also remains a concern, with EEF’s latest Credit Conditions survey finding that the funding situation is improving only slightly at the present time.

Meanwhile, input prices – up last year – could be driven even higher by demand from emerging economies.

Source the Manufacturer