UK businesses trying to stimulate growth in dire economic conditions might have an example to follow in the manufacturing sector.
Manufacturing was the lone bright spot in an otherwise dismal UK Business Trends report for July released by BDO LLP. Confidence in the manufacturing sector rose from 83.8 in June to 90.5 in July on BDO’s optimism index, which is calculated by taking a weighted average of the results of prominent UK business surveys.
Still, the overall optimism index, which predicts business performance two quarters ahead, hit a seven-month low, falling to 93.1 in July from 93.5 in June. Service-sector confidence fell by 2.1 points from June to 93.8 in July. A 95.0 mark indicates growth. Another sign of weakened confidence ‒ private-sector hiring intentions remained weak in July, with the BDO Employment Index sliding to 93.3 from the previous month’s reading of 94.3.
Diversifying exports away from the euro zone might have been the stimulus for the highest monthly rise in the manufacturing confidence index since February 2011. Manufacturers remain exposed to the economic crisis in the euro zone. But trade data indicated that goods are increasingly being exported to higher-growth areas outside the EU, the report said.
“The sector should be applauded for taking a pragmatic and adaptable approach to diversify exports away from the volatile euro zone,” BDO partner Peter Hemington said in a statement. “… Other UK business could look to emulate this tactic … , and it may be that their money is better spent marketing elsewhere, looking to the BRICs, CIVETs and the so-called Next 11,” he said.
Sustaining manufacturing’s momentum might be difficult, though. UK manufacturers reported difficulties in the Industrial Trends Survey conducted by the Confederation of British Industry (CBI), a UK business lobbying organisation. Manufacturers reported weakening in their total and export order books in August as well as flattened expectations for growth. Fifteen per cent of 456 manufacturers surveyed said order books were above normal, while 36% reported below-normal order books.
In July, the quarterly version of the Industrial Trends Survey showed promise for manufacturing, with 29% of manufacturers saying output volumes were up compared with the previous three months and 21% saying they were down.
“The economic environment for UK manufacturers remains challenging, with domestic demand relatively muted and the ongoing euro-zone crisis now seeming to drag on broader global economic momentum,” CBI Head of Economic Analysis Anna Leach said in a statement.
—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.