Promising outlook for UK engineering

Despite continuing to operate in very challenging economic conditions, the outlook for UK manufacturing and engineering firms is brighter. A report issued last month by Ernst & Young and the ITEM Club – entitled 'Economic Outlook for Engineering' – suggests that the prolonged and severe decline in UK manufacturing appears to be levelling out. ITEM expects the year ahead "as a whole to be stable" and states that the "recent fall in sterling, together with the forecast recovery in world trade, should facilitate the long awaited recovery and manufacturing output is expected to rise by 2.9% in 2004, outpacing GDP growth for the first time for many years." More specifically, this manufacturing recovery is likely to boost the UK engineering sector in several ways. As the report explains: "Just as for manufacturing industry as a whole, the statistics for engineering suggest that the deterioration may be at an end and that recent months of have been broadly stable with the closing months of 2002. Indeed, more encouragement can also be gleaned from the apparent improvement in orders on hand in the machinery and equipment sectors." The report goes on to say that, "2003 as a whole may still show volume declines in most engineering sectors because of the trends of through 2002." But ITEM expects activity to be relatively stable in the near term before accelerating more strongly next year. In particular, ITEM predicts strong growth in mechanical engineering and electrical equipment in 2004 and 2005, as these respond very well to the revival in global trade. The report also states that, "Metal goods is more muted as markets remain fiercely competitive." The massive financial problems of the global airline industry threaten not only to defer recovery but could cause further material cutbacks. On the defence side though, Eurofighter production is a significant positive. As for automotive engineering, the report states: "Through 2002, motor vehicles was a notable bright spot in engineering, as UK car production bucked the trend and rebounded from the depressed levels of late 2000 and 2001 (increasing by 9%), whilst commercial vehicle volumes were stable. 2003 has started a little lower and the slowing UK consumer sector threatens the domestic market. But planned increases in specific programmes, bolstered by strong exports, suggest a good year overall." DP