Confidence levels in the manufacturing sector jumped in the third quarter, according to new research by accountants and business advisers BDO LLP, which looked at confidence levels in the sector over the next six months.
In a survey covering Aerospace & Defence; Food Manufacturing and Distribution; Automotive; Engineering; and Technology, Building Materials, Chemicals and Pharmaceuticals across the UK, 49.5 per cent of respondents in Q3 were confident about the outlook for their business over the next six months, a sharp rise from Q2, when 37.3 per cent said they were confident. Thirty-seven per cent of respondents said their confidence levels were unchanged while just 13.3 per cent said they were negative about the next six months.
Those that do feel gloomy about the prospects for their business over the next six months are mostly engineering and technology/electronics businesses, which have been hard hit by the downturn in the automotive and consumer electronics industries. On the bright side, however, two thirds of these businesses intend to invest between one and five per cent of turnover in research and development (R&D), indicating expectations of an upturn in 2010.
According to the research, almost a third of companies 29 per cent plan to increase R&D investment, while nearly 65 per cent plan to keep R&D investment at the same level next year. Just seven per cent plan to decrease their investment.
In particular, half of pharmaceutical and chemical firms and a third of automotive and building materials firms plan to increase their R&D investment. Interestingly, 28 businesses report spending between two and five percent of turnover on R&D with two thirds of these being smaller firms (turnover below £30m) in the engineering, automotive, medical and optical sectors.
These findings mirror the Governments R&D Scoreboard 2008, which found that smaller companies tend to invest a relatively larger percentage of their turnover in R&D because they are growing businesses competing in sectors where technology is constantly changing.
Tom Lawton, Head of Manufacturing at BDO LLP commented, Although conditions for manufacturers across most sub-sectors remain challenging, confidence levels have seen a significant increase since the last quarter. Our findings show that nearly half are now more confident about the next six months, a clear indicator that they believe a real economic recovery is not far off.
Also, whereas in Q2, we saw pockets of negative sentiment in the key manufacturing sectors, i.e. the Midlands, confidence levels are now consistent across the UK. Recovery in the sector will probably be a slow process; however, hopes are high that the sector has turned a corner and we are now seeing more consolidation as opposed to contraction, which is further borne out by the recent announcement that Gross Domestic Product (GDP) decreased by 0.4 per cent in the third quarter of 2009, compared with a 0.6 per cent decrease seen in the second quarter. he concludes.