Manufacturers' confidence growing says report

Manufacturing firms are becoming increasingly confident about the economic outlook after a bigger than expected improvement in output and orders in the past few months, a report showed today.

A survey of more than 500 firms by the Engineering Employers Federation and business advisers BDO revealed a broad-based return of confidence, with companies more upbeat since the start of the recession.

Despite the optimism, the report warned of a number of risks ahead, including uncertainty over public finances and ongoing issues over access to finance.

The study revealed that job losses in manufacturing had continued to level off, but profit margins remained under pressure and investment would be the last indicator to recover.

EEF chief economist Lee Hopley said: "Having emerged from the recession at the end of last year, the start to 2010 was better than expected. Clearly more companies are becoming more confident about their prospects and we're beginning to see the real benefits of an export-led recovery.

"But we have to be cautious about predicting a strong rebound, as a number of factors could knock growth off track. The recovery depends on world markets continuing to grow, and the financial system's ability to provide finance is yet to be fully tested. Investment plans are also likely to remain on hold until manufacturers get a better sense of how a new government plans to repair the public finances."

Tom Lawton, head of manufacturing at BDO, added: "It is great news to see so many positive indicators from the survey, however manufacturers still need to be careful as working capital funding pressures from this growth in activity are applied to already strained balance sheets.

"In particular, manufacturers should be monitoring the health of all major customers, monitoring and acting if aged debts begin to mount and considering the security of their supply chain, but on a positive note UK manufacturers do look to be making impressive gains in exports."

Electronics was one of the strongest performing sectors in recent months, while the motor industry, helped by the car scrappage scheme, also saw an increase in output.

All regions of the country saw better conditions, with the biggest swings in the East of England and Yorkshire and Humberside.

The rebound in electronics gave a boost for the South East, South West and Scotland, while ongoing weakness in the metals sectors and a "patchy" automotive performance left output in the Northern regions below the UK average.

One company in seven reported increasing employee numbers over the past quarter, with a similar proportion planning to recruit over the coming three months.

The report, published at the start of Manufacturing Week, which aims to promote the sector, added that company investment plans continue to be scaled back.

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