UK Manufacturing is modestly growing, but there are productivity challenges which need addressing, says KPMG

UK Manufacturing is modestly growing...

Despite weaker demand from overseas, UK manufacturing productivity output and new orders are growing modestly.

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The latest CIPS UK Manufacturing PMI reported modest growth in UK output and new orders on the back of solid domestic demand, despite weaker demand from overseas.

KPMG’s UK Head of Industrial Manufacturing, Stephen Cooper, said: “The UK general economy is looking cautiously optimistic, and there is modest growth in the UK manufacturing sector. There is also a more positive sentiment in the UK following the recent UK election results, which appears to be supporting local demand for UK manufacturing goods.”

“However, UK productivity is not where it needs to be in order for the UK to remain competitive in the global market. Recent international comparisons by the Office for National Statistics  (ONS) show that output per hour worked in the UK is substantially lower than the average of other members of the G7 (the US, Germany, France, Italy, Japan and Canada). As the UK economy continues to improve, more businesses will need to reinvest in expansion, to support improved productivity. Continued poor UK productivity will adversely affect final UK product costs, and thereby the global demand for UK goods, as UK goods will not be as competitively priced as others.”

“The weaker export market for UK goods may also be due to the exchange rate, and relatively softer manufacturing conditions in other larger global economies. In China and the USA manufacturing output has continued to contract over recent months due to weaker export demand for both countries‘ goods. However Eurozone manufacturing is more positive as there is a continued improvement in manufacturing in a number of countries - in particular Spain, the Netherlands and Italy, followed by modest growth in Germany and Austria, even though French output though has slowed. As Europe remains a key market for UK manufacturers, who still export some 40% of UK goods to Europe, this Eurozone upward trend is encouraging news for UK exports.”

“Overall the UK needs to remain focused on focused on improving UK productivity, in order to remain competitive in the wider global market. Domestic demand, although currently good, will not provide a large enough market to support ongoing growth for UK manufacturers‘ goods”, he added.

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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