Industry forecasts highlight divergence in sector performance

The forecasts show the very diverse nature of modern manufacturing in the UK, but also the vast array of global factors at play which are set to exert varying degrees of influence on the growth prospects of individual sectors next year.

EEF's analysis shows that the leader sectors such as transport, in particular motor vehicles and aerospace, and the rejuvenation of pharmaceuticals continue to provide considerable reasons for optimism. These sectors will not only drive output growth in the year ahead, but they will also buck the wider manufacturing trend of reduced employment with an increase in job numbers in 2016.

In contrast, the collapse in oil & gas activity, weakness in key export markets and strong sterling are providing considerable challenges for other sectors. Factors closer to home that have dragged on manufacturing activity in 2015, including disappointing construction activity, should be a less prominent issue for exposed manufacturing sectors in the next 12 months.

Ms Lee Hopley, EEF Chief Economist, says: "Manufacturing is a hugely diverse part of the UK economy. Looking at the sector as a whole growth has disappointed in 2015 and we've seen overall confidence levels tail off through the year. But to get a true sense of where the sector stands going into 2016 we have to look at the variation in performance across different industry segments with some sectors enjoying a positive momentum, while others have been hit hard by global factors largely outside of both their and UK government control.

"Looking forward this divergence in performance shows no signs of abating though most manufacturing sectors should see positive growth next year, albeit at varying levels. Risks and opportunities will undoubtedly abound next year and our mix and the agility of the firms, with 2016 expected to be a more positive one for UK industry."

Transport sectors drive on

The transport sectors continue to have a momentum of their own. Motor vehicles remain on their strong growth trajectory, capitalising on the introduction of new models and strong consumer demand. Whilst growth will ease from the highs of recent years, affected in part by the fall in exports to China (-22 per cent drop compared with 2014), the sector is expected to grow by 2.1 per cent in 2016.

The other transport sector has returned to solid growth in 2015 with aerospace companies reporting large backlogs and record production rates swelling up their revenues. Fast growing demand for aircrafts in Asia Pacific is contributing to this buoyant outlook for a sector that is forecasted to grow by 5.1 per cent in 2016.

Oil & Gas supply chain remains under pressure

Sectors embedded in the oil & gas supply chain continue to struggle with mechanical equipment bearing the brunt. The combination of a drying up of capital expenditure from the North Sea and the general slowdown in global manufacturing has taken a heavy toll. Whilst prospects for the sector are expected to stabilise in 2016 as companies adjust to the lower oil prices, negative base effects from this year should spell a contraction of 2 per cent.

Headwinds pile on for the metals industry

The closure of steel plants, a strong exchange rate, Chinese dumping and falling demand worldwide has led to a slump in the basic metals sector this year. Next year is likely to be little different with output forecast to drop by 12.6 per cent. However, the metal products sector is more diverse in demand and less export intensive than basic metals. Helped by demand from the motor vehicles and other transport (in particular aerospace) industries, the sector is expected to expand by 0.5 per cent.

Food & Drink fails to piggyback on strong consumer demand

The ongoing supermarket price wars have been putting pressure on margins and eventually output in the first half of 2015. However, a relaxation in price pressures added to a positive boost from the Rugby World Cup have improved prospects in the second half.

This should translate into brighter prospects for 2016 as food and drink manufacturers rationalise their supply chains. Together with continued strong growth in household consumption the sector is forecast to grow by 1.1 per cent.

Mixed picture from bricks & mortar

Construction activity has surprised on the downside in 2015 and sectors in the supply chain such as non-metallic minerals and rubber and plastics have suffered falls in demand. While 2016 should see a rebound in construction, unfavourable base effects from this year should mean flat growth in 2016.

Rubber and plastics, however, benefit from a more diverse demand base with a good chunk of output supplied to the buoyant motor vehicles sector. Continued innovation and demand for packaging which accounts for almost a fifth of sector output should lead to strong growth of 2.6 per cent in 2016.

Pharmaceuticals stage a comeback

After five consecutive years of contraction the sector is finally coming off the patent cliff. Ongoing acquisitions and pipelines for new products are coming on stream, leading to a growth forecast of 2.2 per cent in 2016. The chemicals sector, although related to pharmaceuticals is affected by different dynamics. As a result, the sector has seen positive growth in overseas sales with the US, China and Middle East absorbing the lion's share of chemicals exports. The boost from lower input costs due to the slump oil prices is likely to dissipate next year so growth is likely to ease slightly to 1.2 per cent.

For further information about EEF industry sectors forecasts please go to www.eef.org.uk.