Manufacturing past, present and future

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Manufacturing past, present and future

  1. 1. UK manufacturing – past, present andfutureFebruary 2012
  2. 2. Manufacturing output fell rapidly in 2008/9...% balance Volume of output +50 +40 +30 +20 +10 0 -10 -20 -30 -40 -50 -43 -49 -60 -53 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Source: CBI Industrial Trends Survey
  3. 3. ...as demand both at home and abroad fell sharply...% balance Manufacturing order books (above/below normal) +20 +10 Total order books Export order books 0 -10 -20 -30 -40 -50 -60 -70 Source: CBI Industrial Trends Survey
  4. 4. ...and firms depleted inventories markedly Volume of stocks% balance +15 +10 Raw materials Work in progress Finished goods +5 0 -5 -10 -15 -20 -25 -30 -35 -40 2008 2000 2001 2002 2003 2004 2005 2006 2007 2009 Source: CBI Industrial Trends Survey
  5. 5. Demand began to recover over H2 2009 and 2010% balance Manufacturing order books (above/below normal) +20 +10 Total order books Export order books 0 -10 -20 -30 -40 -50 -60 -70 2008 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 Source: CBI Industrial Trends Survey
  6. 6. Export orders were boosted by a sharp depreciation in SterlingJan 2005=100 Sterling effective exchange rate 110 105 100 95 90 85 80 75 70 2011 2003 2004 2005 2006 2007 2008 2009 2010 Source: Bank of England
  7. 7. Manufacturers began to replenish inventories Volume of stocks% balance +20 Raw materials Work in progress Finished goods +10 0 -10 -20 -30 -40 2011 2004 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 Source: CBI Industrial Trends Survey
  8. 8. Both factors facilitated a strong recovery in the manufacturing sector% balance Volume of output +40 +30 +20 +10 0 -10 -20 -30 -40 -50 -60 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: CBI Industrial Trends Survey
  9. 9. But sharply rising costs led to a strong build up of inflationary pressure +70% balance Costs and output prices +60 Average unit costs Domestic output prices +50 +40 +30 +20 +10 0 -10 -20 -30 -40 2006 2002 2003 2004 2005 2007 2008 2009 2010 2011 Source: CBI Industrial Trends Survey
  10. 10. Sentiment deteriorated sharply over H2 2011% balance +30 Business optimism +20 Overall business situation Export prospects +10 0 -10 -20 -30 -40 -50 -60 -70 2006 2007 2008 2009 2010 2012 2011 Source: CBI Industrial Trends Survey
  11. 11. Concern over political and economic conditions abroad rose sharply% of Factors likely to limit export orders:respondents political/economic conditions abroad 60 50 40 30 20 10 0 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: CBI Industrial Trends Survey
  12. 12. But demand began to recover at the turn of this year...% balance Manufacturing order books (above/below normal) +20 Total order books Export order books +10 0 -10 -20 -30 -40 -50 -60 -70 2011 2006 2000 2001 2002 2003 2004 2005 2007 2008 2009 2010 Source: CBI Industrial Trends Survey
  13. 13. ... supporting expectations for output growth% balance Expectations for output growth +40 (next three months) +30 +20 +10 0 -10 -20 -30 -40 -50 -60 2007 2008 2009 2010 2011 2012 Source: CBI Industrial Trends Survey
  14. 14. Manufacturing output will continue to risemodestly aheady/y% Manufacturing output 8.0 6.0 4.0 2.0 CBI forecast 0.0 -2.0 -4.0 -6.0 -8.0-10.0-12.0-14.0 2011 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 Source: ONS/CBI
  15. 15. A comparatively weak Sterling will continue to support export ordersJan 2005 = 100 Sterling effective exchange rate 110 105 100 95 90 CBI forecast 85 80 75 70 2011 2007 2003 2004 2005 2006 2008 2009 2010 2012 2013 Source: Bank of England/CBI
  16. 16. But longer-term challenges arise from a period of structurally higher commodity pricesGMO chart? Source: McKinsey & Company: “Resource Revolution: Meeting the world’s energy, materials, food and water needs”, November 2011
  17. 17. Strong need to rebalance exports towards BRICs and emerging markets% Destination of UK exports vs GDP growth forecasts18 Share of UK exports (% of total) Average annual % growth 2011-1616141210 8 6 4 2 0 United States Germany Netherlands France China India Russia Brazil Source: IMF/ONS
  18. 18. Sectors that exploit strong emerging market demand are likely to thrive Automotive Civil aviation• Automobiles currently account • Strong growth in global for 10% of UK exports passenger traffic• Can benefit from strong • But emerging market Chinese demand – the world’s manufacturers also looking to largest automotive market. establish presence Electrical and optical & High end/luxury consumer high-tech goods goods• The UK already has a strong comparative advantage • A growing wealthy middle class in emerging economies will be• Rising incomes and a potential market. demographic changes in EMEs – expect approx 10% growth per annum. Source: CBI
  19. 19. In summary…● Manufacturing was severely impacted by the global downturn in 2008/2009.● After a robust recovery, the sector saw softer activity in H2 2011.● But, demand and output expectations have recently been stronger.● Challenges ahead: – Adjustment to a period of higher and more volatile raw materials prices. – Need to sustain growth by re-orientating exports to high growth markets.
  20. 20. UK manufacturing – past, present andfutureFebruary 2012

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