Manufacturing firms show healthy growth

Manufacturers are beating the economic downturn by posting their tenth consecutive quarter of healthy growth, according to a survey.

The research, from manufacturer's organisation EEF and Grant Thornton, shows firms reported a rise in domestic orders in the second quarter of 2008.

There was a weakening in export orders, however.

EEF chief economist Steve Radley said: "Manufacturers are providing a beacon of light amidst the current economic gloom and remain cautiously optimistic about their immediate prospects.

"Companies are responding to the squeeze on their margins from rising costs by continuing to invest in their businesses to drive up productivity."

Output and orders showed positive balances for the tenth consecutive quarter, at +16 per cent and +13 per cent respectively.

After falling significantly last quarter, the balance on domestic orders picked up, rising from +2 per cent to +4 per cent, while that for export orders edged lower to +10 per cent, the report found.

Manufacturers are recording higher prices but have not been able to pass on all of the cost rises. Margins have therefore been squeezed, the research suggested. A weaker pound compared to the euro has helped support export sales though, according to Grant Thornton.

Bob Hale, head of manufacturing at Grant Thornton, said: "The pain of raw material price inflation and tighter refinancing is balanced by the gain of a weaker pound for exporters and the growing demand for the quality output that UK manufacturers have gained a reputation for producing."

The employment intentions indicator eased to +3 per cent from +9 per cent over the quarter, although investment intentions remained strong, with a balance of 14 per cent.

As a result of the survey, EEF said it is upping its growth forecast for manufacturing for 2008 to 0.9 per cent.