North West manufacturers down but not out as sector loses momentum

Darrell Matthews, EEF North West Region Director

The latest quarterly Manufacturing Outlook survey, published by EEF, the manufacturers’ organisation and DLA Piper, the global law firm, reveals a picture of weaker than expected growth for North West manufacturers during the second quarter of the year.

Despite companies forecasting a pick-up in activity in 2015, the Q2 findings underline a loss of momentum in the first half of the year. The sector is still in positive territory, but showing signs of a weakening in key indicators, most notably in total orders.

In Q1 a net 6% of the region’s manufacturers saw orders decrease. However, a far healthier 38% predicted an increase in orders for Q2. Unfortunately that failed to materialise, with the latest findings showing that a net 27% saw an increase in orders during the second quarter of the year and, more worryingly, a balance of 18% predicting an increase in orders in Q3.

The picture is stronger when it comes to output, where a net 6% of North West manufacturers saw a decline at the beginning of the year. A net 27% of firms believed an increase was on the cards for Q2, and their forecast was almost spot on with, in reality, a balance of 26% of companies reporting increased output in the second quarter.

A key factor carried over from Q1 is the impact of slowing activity in the oil and gas sector on supply chain industries, where investment delays have knocked UK orders. This will be felt particularly acutely in the North West where the supply chain is a strong feature.

Despite this, employment has remained firm with a balance of 12% of firms on the recruitment trail in the last quarter.

In fact, manufacturers in the North West are to an extent bucking the national trend, where the picture looks slightly more muted. Although forward looking expectations remain positive, confidence about the next quarter and the next year has notched down. As a result, EEF is softening its 2015 manufacturing growth forecast to 1.5% (down from 1.7%) and to 2.6% (down from 2.8%) for the economy overall (GDP).

The survey does contain some bright spots however. While exports remain flat, a third of manufacturers are feeling more confident about European sales prospects and this is driving stronger expectations for exports in the coming quarter. At the same time, sectors supplying to consumers or construction have seen activity holding up well – a trend that looks set to continue into the next quarter.

Other key findings across the UK: 

• Output and orders remain positive, but edge lower in Q2 
• UK demand weakens and exports remain flat
• Confidence slips, leading to softer recruitment and investment intentions
• Signs of improving demand in some export regions, most notably in Europe, while sectors supplying consumers or construction see activity holding up well.

Darrell Matthews, North West Region Director at EEF, says: “Manufacturing is still growing, just not at the pace anticipated at the beginning of the year. The sector is still in positive territory, but the ground is looking a lot less firm beneath its feet.

“Much of this weakening is down to the impact of the decline in oil and gas activity on the supply chain, plus the knock-on effect on domestic demand. There is a range of challenging factors at play, but the net result is that this weakening trend looks set to continue, potentially even through to the end of the year.

”A resilient and productive economy needs a vibrant manufacturing sector, investing in technology, innovation and people. The sector has seen a good run of not only growth, but employment, investment and productivity gains over the past couple of years and it’s vital that the new Government takes all necessary steps to enable this to continue into the future.”

David Gray, partner in DLA Piper's Manchester office, says: “There was a lot of uncertainty in the run up to the UK election with few predicting such a decisive outcome. Whilst the overall outlook for the manufacturing sector is still one of growth, hopefully a majority government and the promise of increasing economic stability will boost confidence and have a positive effect on manufacturers in the second half of the year."