UK manufacturing to expand in 2016 after contraction, EEF says

Manufacturing activity in the UK is expected to rebound in 2016 after contracting this year but the industry may shed thousands of jobs to cope with a slump in exports, according to a new report.

Manufacturing contracted 0.1% this year, the EEF said, dragged down by lower productivity in oil and gas, weakness in the steel industry and a tough exports market.

The sector experienced the worst set of data since 2009 in the final three months of the year, with a strong pound also deterred international sales and low oil prices hurt industry investment.

The EEF has forecast 8% growth in the sector next year despite a continued slowdown in capital expenditure in the North Sea oil and gas industry, which is projected to lead to a 2% decline.

The basic metals industry also faces a 12.6% drop following the closure of many UK steel plants, EEF said.

However, the transport sector is expected to provide a lift to the manufacturing industry, driven by demand for aircraft from the Asia Pacific region. The report has forecast a 2.1% increase in transport for 2016.

The pharmaceutical industry is also set to rebound 2.2% in 2016 after shrinking gradually for five years, boosted by a pipeline of new products.

“Looking at the sector as a whole, growth has disappointed in 2015 and we’ve seen overall confidence levels tail off through the year,” said EEF chief economist Lee Hopley.

Hopley said 2016 will see positive momentum in some sectors while others will have been hit hard by global factors. The economist warned that risks of a further slowdown in China could hurt the industry.

EEF has predicted a 1.3% fall in 2016 headcount, equivalent to more than 30,000 job losses, amid continued falling export demand, low oil prices and a rising pound.

“Looking forward, the divergence in performance shows no signs of abating though most manufacturing sectors should see positive growth next year, albeit at varying levels,” Hopley said.