Tough going

by agwelch

‘Viewpoint’ piece for September’s Engineering magazine

Another month, another concerning report on the state of UK manufacturing. According to an EEF survey UK manufacturers are experiencing the toughest trading conditions in three years. However, it is not all doom and gloom; recent activity in the automotive sector offers cause for optimism.

To deal with the depressing first: the EEF survey, carried out by the manufacturing organisation in partnership with business consultancy BDO, has found that output is at its weakest since the recession of 2008/2009. Additionally, the Eurozone crisis and the slowdown of emerging markets appear to have further intensified the squeeze on margins in UK manufacturing.

The survey showed that an anticipated softening of challenging market conditions failed to materialize over recent months. Furthermore, responses revealed a more marked weakening than expected across a range of indicators.

“The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey,” commented EEF chief economist Lee Hopley. “Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to UK manufacturers and also our economy’s reliance on exports as a source of growth.”

The EEF has subsequently challenged government to end its inconsistent approach to growth by outlining a clearer plan for the future of the economy alongside a long-term industrial strategy.

The organisation’s Route to Growth report will call on the Government to produce a clear vision of the better-balanced economy it is trying to create. According to EEF chief executive Terry Scuoler, “a modern industrial strategy should focus on measures to help the widest number of companies grow by investing and exporting.”

“Clearly we need measures to get growth going and priorities should include encouraging business investment, increasing access to finance, reducing energy prices, and rebuilding our infrastructure,” he says. “But these need to be part of an overall industrial strategy for growing and rebalancing our economy and not a series of uncoordinated initiatives.”

Now the good news: one area of UK manufacturing that appears to be belying the tough trading conditions is the automotive sector. Recently, two major vehicle manufacturers have announced significant UK investment programmes.

Jaguar Land Rover (JLR) is to invest £370 million to support the production of its new Range Rover. The investment will be used to upgrade JLR’s Solihull factory, improving its hi-tech paint shop and trim assembly facilities, in a move that will safeguard the 6,800 jobs at the West Midlands plant.

Meanwhile, Honda has announced its biggest UK investment in over a decade, revealing a £267 million injection to increase the productivity of its Swindon plant. Hundreds of new jobs will be created to support the manufacture of the 1.6 litre diesel Honda Civic and the new CR-V model. Honda hopes that, by the end of 2012, production at its Swindon factory will have doubled on last year’s figure.

The JLR and Honda investments are both good news for the UK balance of trade with 60 per cent of vehicle production slated for export, in particular to the growing markets of the Middle East and Asia.

There can be no doubt that UK manufacturing as a whole is experiencing a testing period. Nevertheless, headline automotive investments prove that the sector has the heritage, the expertise, and the ambition to drive recovery and growth.