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News : UK Economy Last Updated: Nov 21, 2013 - 3:11 PM

Growth in UK’s manufacturing sector strongest for 18 years
By Finfacts Team
Nov 21, 2013 - 2:42 PM

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Growth in the UK’s manufacturing sector was the strongest for 18 years according to the latest Confederation of British Industry's (CBI) monthly industrial trends survey. Both the size of total order books and the pace of output growth over the past three months were the highest recorded since 1995, showing the recovery in UK manufacturing is accelerating.  

The survey of nearly 350 manufacturers found that total order books relative to normal levels were their strongest since March 1995. Export order books were also very firmly above average. Output volumes over the three months to November rose at their fastest rate since January 1995, with all but one sector (electrical engineering) reporting growth.

Manufacturers expect output growth to continue at a robust pace over the coming three months.

However, a key factor in the rise in manufacturing output was the performance of the foreign-owned car sector.

A recent analysis by the Office for National Statistics showed that what upturn there has been in manufacturing had dominated by transport equipment, which includes car production, and was no higher by this summer than it was during the depths of the 2008-09 recession.

Margaret Thatcher's Conservative governments had given British Leyland, the leading British car manufacturer,  £2.9bn of taxpayer money from 1979 to 1988. She also had lobbied for Nissan to open a car plant  in Sunderland.

The UK car industry built 1.46m cars in 2012, with a record breaking 1.2m of these exported. While the UK no longer hosts any indigenous high-volume manufacturers, the overseas firms who have invested in the British car industry are firms such as Tata of India , Nissan of Japan and BMW of Germany.

Output from British car manufacturers soared in October in the largest monthly increase for the whole of 2013, according to industry group the Society of Motor Manufacturers and Traders (SMMT).

Demand from the EU, the UK's biggest export market for cars, is recovering and more Britons are buying homemade vehicles.

SMMT figures show car output rising 17.4% in October on the same month a year before, to 160,854 units. Manufacturing for the domestic market jumped 52.4% and export growth lifted 11.4% amid a second consecutive month of rising demand from Europe.

Car production rose 8% last year, against an 8% fall in Germany, and a 12% dip  in France. At the current level of growth, the UK will produce 2m cars a year by 2017, twice what was built in 2009. However, it is estimated that about 30% of the parts in a typical UK-built car are sourced from UK suppliers. In Germany, it is twice that amount.

Overall, manufacturing now employs more than 300,000 fewer people than it did in 2007, at about 2.4m. And the manufacturing sectors, which have thrived, have, in general, made significant labour productivity gains.

The Financial Times says car manufacturing jobs declined from 193,000 to 146,000 between 2007 and 2012 and remain below 2009 levels despite rebounding output, according to SMMT data. There were 29.95m people in employment in the UK at the end of September according to the Office for National Statistics.

Stephen Gifford, CBI director of economics, said today: “This new evidence shows encouraging signs of a broadening and deepening recovery in the manufacturing sector. Manufacturers finally seem to be feeling the benefit of growing confidence and spending within the UK and globally.

“Both order books and the pace of output growth are the strongest they’ve been since 1995, and firms are expecting similar-paced growth over the coming three months as well.

"But challenges remain. UK exporters need government support to break into high-growth export markets to reduce their vulnerability to any further Eurozone flare-ups."

Key findings:

  • 36% of firms reported that total order books were above normal in November and 25% said they were below, giving a balance of +11%, the highest balance since March 1995 (+11%)
  • 28% reported that export order books were above normal in November and 27% that they were below, giving a balance of +1%, well above the long-run average of -20%
  • The volume of output in the three months to November rose at its fastest rate since January 1995 (+29% balance)
  •  Firms expect output growth to continue at a similar pace in the next three months: 44% expect to raise output and 20% expect to reduce output, giving a balance of +24%
  • Stock adequacy of finished goods was below average (+7%) for the third consecutive month, while expected price growth rose from October’s fifteen-month low to +5%.

The November 2013 CBI Industrial Trends Survey was conducted between 24 October and 13 November. 345 manufacturing firms replied.

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