Manufacturers spur economic recovery

Underlying optimism that has been flowing through the sector.

Andy Martin
Director, Manufacturing team
Barclays

A number of recent business surveys give UK-based manufacturers good reasons to be cheerful.

Data from the Confederation of British Industry (CBI), British Chambers of Commerce and Institute of Directors (IoD) all agree: not only orders and output but also exports are up.

A survey of managers in the sector found output rising from 51 to 54 points (50 being static) and employment from 48 to 50.7, meaning jobs are being created in the sector for the first time in more than a year.

High-end advantage

What accounts for this performance in an industry often thought of as declining in mature, western economies?

Far from being on its way out, UK manufacturing, which accounts for 16 per cent of gross domestic product, is moving up the value chain.

Rather than targeting low-end mass manufacturing, UK manufacturers have used a vast skilled labour force to build a sector that is highly adaptable, high end and specialised.

“We are at the cutting edge here,” said then Secretary of State for Trade and Industry Alan Johnson recently.

For example, Airbus UK, aircraft-builder and champion of carbon-composite technology, estimates the advanced plastics used in the manufacture of the firm’s recently-launched A380 superjumbo could create up to 30,000 jobs in “a new industrial revolution”.

Sector-wide strength

It’s not just individual companies that are seeing the benefits: whole sub-sectors have gained from the manufacturing upturn.

The aerospace industry, for instance, grew 18.5 per cent in the first quarter of 2006, compared with the same period last year.

In fact, in aerospace and pharmaceuticals the UK has two of the world’s largest manufacturing sectors.

Even in industries thought to be eastward-moving, UK manufacturing is growing.

Of the eight car manufacturers operating in the UK, Toyota, Nissan, Land Rover and BMW Mini are all expanding.

Likewise, Leeds-based sheet-metal firm Applied Metal Technology is growing.

In April it said it would double its workspace and workforce after switching from traditional manufacturing to specialist components.

Optimism gains momentum

Barclays’ Manufacturing Team director Andy Martin recently told the press that current manufacturing figures reflected an “underlying optimism that has been flowing through the sector”.

But will it last?

Yes, says Michael Taylor, senior economist at consultancy Lombard Street Research.

He even suggests there may be “an upside surprise” – in other words, un-forecast growth in the sector.

Sustainable growth

A generalised European recovery will boost UK manufacturing, with the eurozone stimulating export volumes this year.

“For a long time, domestic demand within the eurozone was disappointing, and that had a negative impact on UK exports,” says Taylor.

Now, he says, this demand, combined with a strong UK housing market, is spurring the sector: ”It's looking positive.”

“This isn't just one manufacturing survey,” he adds.

”Wherever you look, surveys are all saying export and domestic orders are up. There's a reasonably good outlook for manufacturing for the rest of the year.”