Manufacturers' bullish expectations at the beginning of 2014 have eased back, leaving firms cautiously confident as they head into 2015, according to the annual EEF/Aldermore Executive Survey. Optimism has been tempered by a hefty dose of realism, with those expecting UK economic conditions to improve almost halving from 70% to 37% this year.
At the same time, the number expecting conditions in the UK to deteriorate has tripled, rising from 5% in 2014 to 17% this year. However, global economic conditions are of greater concern for manufacturers - 38% expect them to take a turn for the worse in 2015 (compared to just 5% at the beginning of 2014).
But despite the more pessimistic economic outlook, there is some good news too. Seven in ten manufacturers (70%) say that the UK will be a competitive location for them in 2015. They are also confident that their staff numbers, sales, margins and productivity, will be heading in the right direction with those expecting an increase in these core measures consistently outstripping those expecting a decline. Almost seven in ten (69%) expect to improve productivity, while 58% expect to boost UK sales. Just under half (49%) expect to be taking on more permanent staff.
Export sales also look positive – albeit expectations are down on last year. Just under half of manufacturers (49%) expect to see an increase in 2015, while three in ten (30%) expect sales to remain steady. The hotspots for export growth are expected to be North America, Asia and South America while, in line with ongoing economic and geo-political uncertainty, manufacturers see Europe and the Middle East as 'not spots'.
In fact, geo-political risks are a key concern for many manufacturers – almost six in ten (59%) say that an escalation would be detrimental to their company's prospects in 2015. Outside of this, manufacturers see rising input costs (45%)*, significant shifts in exchange rates (35%) and upward pressure on pay (29%) as the top risks to growth for their individual companies.
With all these factors on the horizon, the jury is out over whether 2015 will be a year of risk or opportunity. While a third of manufacturers (35%) see more risks than opportunities for their business in the year ahead, these are exactly matched by those who don't (35%).
They are, however, agreed on what the year ahead means for activity. Manufacturers' top priorities in 2015 will be improving marketing and branding (46%), launching a new product or service (44%) and consolidating UK activity (36%). 2015's focus will be on consolidating rather than speculating, with riskier expansion activities way down on their list of priorities. This explains why, despite the more pessimistic outlook, a stronger than average 2% manufacturing growth is forecast for 2015 - down from last year's 3.5%, but still strong.
Terry Scuoler, Chief Executive of EEF, says: "Manufacturers' confidence at the beginning of last year was very high - one year on and, while still positive, it has very evidently eased back. The realities of 2014 have taken the edge off future forecasts and what we are now seeing as we head into 2015 is a far more muted outlook, tempered by a backdrop of difficulties in the EU and wider geo-political concerns.
"The sector is still making good strides, but confidence can be fragile and with an election on the way it is vital that uncertainty and disruption are kept to a minimum. Recovery is by no means guaranteed and we would urge party leaders – and the next Government of whatever shade - to remain focussed on delivering a fully balanced, stable economy where manufacturing is enabled to expand and grow."
Mark Stephens, Deputy CEO and Group Commercial Director at Aldermore, says: "Although confidence has fallen back, it is great to see that the manufacturing industry is predicted to continue to grow in a way that fuels the UK economy during 2015.
"At Aldermore we're seeing ever increasing demand from all sorts of innovative UK manufacturing firms needing to free up cash-flow to expand their business and take on new contracts. We are also seeing an increasing number of our customers making real inroads in the export market selling their produce across the globe. So the prospects for the manufacturing sector are still looking very strong going into 2015."
EEF will be publishing its full election manifesto at its annual conference, sponsored by Lombard, in February, laying down a challenge to all three main parties to pursue policies that will promote jobs and growth. Full details of the conference can be found at: www.manufacturingconference.co.uk