Britain's manufacturing sector will return to growth next year, the recovery gaining pace after a slow first quarter, the Engineering Employers' Federation (EEF) said on Monday.
New export orders in a stronger global economy are expected to help fuel the improvement and the weaker sterling exchange rate will also work in the favour of manufacturers, the EEF said, publishing its quarterly survey of business conditions.
"After a weak first quarter, output is forecast to pick up in the spring with manufacturing set to expand by 0.9 percent in 2010, following a 10.4 percent fall in 2010," it said.
The EEF forecast that UK GDP overall would expand by 0.7 percent in 2010, accelerating to 2.3 percent in 2011. Manufacturing accounts for around 12 percent of GDP, the EEF said.
Britain is suffering its longest unbroken stretch of GDP declines since records began in 1955.
The government, which is forecasting a return to growth by the turn of the year, will update its estimates in the pre-budget report to be published on Wednesday. [ID:nGEE5B22D3]
BUMPY ROAD TO RECOVERY
The EEF said its output balance improved to -3 percent from -25 percent in the past three months.
The balance was zero for the next quarter — indicating that the number of companies expecting output to rise was equal to the number prediciting a further decline. The survey was conducted betwen Nov 4. and Nov. 25 and 618 companies responded.
The EEF noted that incentives supporting the automotive sector would soon come to an end, pushing production levels down in the new year. Car sales have been helped by a government scrappage scheme and a temporary cut in sales tax. [ID:nGEE5B30HR]
However, it saw growth in mechanical equipment and electronics strengthening over the course of the year.
The EEF said that although the weaker sterling exchange rate would be beneficial, its survey highlighted significant concern about exchange rate volatility which could add to uncertainty for companies.
Companies were also worried about their ability to finance new capital investment which could hinder longer-term profitability.
The pace of job losses should slow considerably over the next year, with 92,000 forecast against 192,000 in 2009.
"We won't see any real momentum in activity until the middle of next year and job losses will be a consequence of that," EEF Chief Economist Lee Hopley said. "There's always a lag effect with employment."
