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British manufacturing sector uncertain about economic growth for 2012

Economists are optimistic about solid growth in the UK this year but they fear the impact of problems in the eurozone

Half of Britain’s manufacturing bosses expect the economy to deteriorate further this year as the UK continues to feel the fallout of the deep crisis with its key trading partner the eurozone.

This sector increasingly relied on by ministers to revive flagging growth has serious concerns about the global economic outlook as well as raw material shortages, according to a report today from manufacturers’ organisation EEF.

But factories are more optimistic about their own growth prospects as they seek out business in emerging markets, said the group. Its survey of 204 companies showed a fifth of executives expect conditions in the UK economy in 2012 will be better than in 2011, but 49% believe conditions will worsen.

As for their own outlooks, companies were generally confident about exports, a hope that will bring comfort to the coalition government as it espouses rebalancing the economy towards industry and overseas demand.

More than four-fifths of companies expected sales this year to match or surpass those in 2011. Many said they saw greater opportunities in more than one non-traditional market. EEF said that this followed a 20% annual increase in exports to non-EU markets up to October 2011.

“UK manufacturing has posted solid growth in the past few years but the environment has clearly become a lot more challenging. The road ahead for manufacturing and the UK is extremely uncertain but there still some grounds for optimism,” said EEF chief economist, Lee Hopley.

“Manufacturing has proved to be agile and resilient through a bumpy recovery and companies are continuously looking for new sources of growth. Most manufacturers continue to grasp the opportunities in untapped markets for services and in faster growing emerging markets.

Despite that optimism Hopley added that “this year won’t pass without challenges” notably uncertainty about the wider global economy and raw materials shortages.

The EEF expects the UK economy to increase by one percent in 2012, “underpinned by growth in net trade and investment, against a backdrop of weak consumer and government spending.” That compares with a rise of 0.9% in 2011 and 0.7% in 2012 as estimated by the Office for Budget Responsibility, whose forecasts are used by the government.

The EEF added there were “considerable risks” around its predictions for investment growth, which could be curbed by uncertainty caused by the eurozone crisis or if access to finance remains tight. The crisis also posed risks to trade.

“If some of the more worrying scenarios for the region play out, such as serial defaults, or the disintegration of the euro, there could be a collapse in world trade of a similar magnitude to that following the Lehman crisis,” EEF economists said in their 2012 outlook published today.

This is regarded as a worst-case scenario, and politicians may yet resolve the problems in the euro area. In the case of a credible plan to rescue struggling countries it is likely that consumer and business confidence would return to levels that are more normal for a post-recession period, said the manufacturing organisation. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds