UK manufacturing hits ten-year high

British manufacturing is continuing to improve in 2006, with more companies increasing output in the second quarter than at any time in the last ten years, according to a report.

The second quarter 2006 engineering outlook survey, carried out by the Engineering Employers Federation suggested that the strong growth across the global economy, including the recent pick-up in Europe, is the main driver of growth for UK companies.

The report said that all sectors saw widespread growth for the first time in almost two years, although there were wide variations in the pace, with the higher value sectors such as electronics and electrical equipment seeing the strongest levels.

The EEF said that confidence about the next three months was also holding up, having been the highest for eight years last quarter. This brighter outlook is one factor spurring planned increases in investment, as is the need to focus on raising productivity to counter rising costs.

However, the report warned that companies are less sure about the domestic market, suggesting that the Bank of England should continue to hold off any increase in base rates.

The survey also showed that more companies reported increases in employment rather than job cuts in the last quarter and that employment prospects turned positive for the first time in a year.

Key results included:

• Output indicators at highest levels for ten years
• Strong world economy supports growth
• Some improvements in margins
• Investment plans holding up
• Employment prospects more positive as job cuts ease
• Growth forecasts to the fourth quarter of 2006 in engineering and manufacturing revised up to 3.8% and 1.8%

Commenting on the survey, EEF Chief Economist Steve Radley said: "Our survey shows that manufacturers are making the most of a strong global economy, with exports, investment and employment all expanding. However, the domestic market remains subdued, suggesting that the MPC should hold off from raising interest rates."

(KMcA)