Manufacturing growth in the East of England slowed unexpectedly in the second quarter as orders and output weakened partly due to lower investment in the oil & gas sector and electoral uncertainty, according to a survey by industry body EEF.
Although firms forecast a pick-up in activity in 2015 and the sector is still in positive territory, the Q2 findings point to a loss of momentum in the first half.
In Q1 a net 40% of the region’s manufacturers saw output increase, with 34% predicting an increase for Q2. But output remained unchanged in the second quarter. Meanwhile a net 33% of the region’s manufacturers saw an increase in orders and 28% expected an increase in Q2. In fact, a balance of 11 per cent saw orders slide in the period.
EEF says a key factor is the impact of slowing activity in the oil and gas sector on supply chain industries, where investment delays have knocked UK orders, which has an impact nationally and regionally.
Manufacturers in the East of England also fared worst for employment in the last three months – on balance 4% saw levels go down, making it the only region in the UK to report a decline in recruitment for the last quarter. And, judging by recruitment intentions for the next quarter, it seems likely that this trend will continue.
Nationally, the picture also looks 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.
Jim Davison, East of England 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.”
Richard May, partner and Head of the Manufacturing sector at DLA Piper, 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."
