Firms ramp up investment

EEF, the manufacturers’ organisation, said a survey of 750 businesses showed a third believe the UK is a more competitive location than two years ago.

The survey reveals that manufacturers’ investment in the latest machinery has grown rapidly in recent years to keep up with rising demand and to make good on past cutbacks.

The research indicates there is more investment in machinery and equipment to come, but at a slower pace.

EEF said this reflects an increasing bias towards training, recruitment, research and development, software and marketing as companies jostle to get a competitive advantage. Over a quarter (28 per cent) of companies said this is more important than investing in plant and machinery, up from four per cent last year.

The report said that events in Europe could either boost or bust manufacturers’ capital expenditure plans over the coming years.

A sustained recovery across the eurozone region would push investment levels higher, but a break up would hit plans for growth at many companies.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “UK manufacturers’ on-going commitments to invest in technology, skills and innovation provide positive signals about the sector’s future growth and productivity prospects.

“Some of the barriers that companies’ investment strategies came up against following recession have clearly faded, but it’s vital that their current plans stays on track.”

She said that some sectors are facing headwinds from more uncertain demand, but big questions about the future economic prospects for European partners present one of the biggest external risks to firms’ ability and confidence to press ahead with vital investment.

“UK efforts to build solid policy foundations are still needed to support the efforts of investment-intensive and highly productive sectors – like manufacturing – if the UK economy is to return to a more sustainable and balanced path of economic growth,” she added.

Ian Isaac, head of the report’s co-author Lombard Asset Finance, said manufacturers continue to lead the way for the UK economy and they recognise that improved productivity is the key driver to deliver ongoing and sustainable growth.

“It is particularly encouraging to see that over 95 per cent of companies plan to invest in raising their productivity levels over the next two years,” he said.

“This strategy is echoed by Lombard’s own research which shows that increasing efficiency to drive productivity is a key element in manufacturers’ business investment plans.

“When you put this in the context of improved access to credit, it is clear that UK manufacturing has an opportunity to build on its recent revival and further establish its competitive position on the global stage,” he added.

The report shows that manufacturing investment has recovered strongly since the financial crisis, increasing by almost a half.

It also shows that manufacturers invest a high proportion of their output, almost one fifth of Gross Value Added (GVA) in 2014.

Almost three quarters of companies are planning to invest in workforce and management skills and a third plan to invest to boost innovation.

Investing in plant and machinery continues to be a crucial target for productivity improvements in the manufacturing sector. The need to replace obsolete equipment covers the lion’s share of investment plans, with 60 per cent of manufacturers increasing investment to improve their productive capacity.