North East manufacturers down but not out as sector loses momentum

The latest EEF survey reveals a picture of weaker than expected growth for North East manufacturers during the second quarter

Liz Mayes
Liz Mayes

Momentum is waning for North East manufacturers who have reported weaker than expected growth in the second quarter of 2015, key research has revealed.

The latest quarterly Manufacturing Outlook survey – published by EEF, the manufacturers’ organisation and law firm DLA Piper – shows the region is still in positive territory and ahead of a muted UK picture, but signs are emerging of a weakening in output and orders.

In the first quarter, fresh from forecasts of a pick-up in activity this year, 11% of the region’s manufacturers saw output increase, with an even healthier 29% predicting an increase for Q2.

But the predicted growth failed to materialise, with the latest findings showing that only 17% saw an increase in output during the second quarter and, more worryingly, 4% predicted output to fall in Q3.

There is a similar picture with total orders, in which 5% of firms saw orders go down at the beginning of the year. And while 22% believed orders would increase in Q2 just 4% reported a rise. In Q3, 8% expect orders to fall.

Liz Mayes, North East Region Director at EEF, said: “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.”

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).

Russell Croisdale, managing director of Washington-based Encore Envelopes and Encore Packaging Solutions agreed that the start of 2015 had been quieter, with orders slower to come through suggesting companies are being more careful with how the spend their budgets.

“To some extent, this could have been caused by the general election with companies not sure which party would be in power from May,” he said.

“But the elections have passed and we’re not seeing a change in customers’ recent purchasing habits.

“Our exports have also suffered due to the strength of the pound and we’re certainly seeing more competition from mainland Europe – it might not be direct competition but it’s putting pressure on our prices.

“If we’re looking to compete, we have to work harder to make our prices competitive.

“However, we’re still looking to employ more people across both Encore Envelopes and Encore Packaging Solutions, and have invested in equipment, machinery and facilities which will come to fruition over the following months.”

Ian Malclom MD of Redcar based car parts manufacturer ElringKlinger on the shopfloor
Ian Malclom MD of Redcar based car parts manufacturer ElringKlinger on the shopfloor

Ian Malcolm, managing director of car parts manufacturer ElringKlinger UK, based in Redcar, said he too had seen a slowdown.

He said: “We ended 2014 on a high following the significant expansion of our site and installation of a wind turbine, and the first half of 2015 has seen us continue with this positive mind set.

“I set a target in 2012 of moving the business from £13m to £26m in five years.

“Despite seeing a slowdown in some areas of our business during the first half of 2015, we still feel confident that we will hit that target.

“The market place remains buoyant but it is important that nothing happens to jeopardise the economic recovery that we have seen.

“Teesside often gets left out and there’s an awful lot of good things happening down here. If the North East wants to do better we must pull together even more closely for the foreseeable future.”

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