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GE survey reveals UK high tech manufacturers remaining confident about 2012

03 January 2012

The UK high tech manufacturing sector remains positive about prospects for 2012, although very negative about the overall economic output. Some 71% of the 362 high tech manufacturers questioned for the third wave of the GE High Tech Index in November/December 2011 said they believed their business would grow in 2012. Some 45% felt they would achieve growth of over 5% and over a quarter (26%) said, even despite current uncertainties, they would achieve growth rates of more than 10%.

UK high tech manufacturers also remain positive about current trading conditions.  73% of businesses said they were positive about current trading with 29% very positive and 44% fairly positive.  However this was slightly down from June 2011 when 77% of businesses noted they were positive about current trading.
Respondents also felt that the current Eurozone situation could provide UK high tech manufacturers with opportunities.  When asked to reflect on whether the UK high tech manufacturing sector was becoming more or less competitive with other regions of the world 28% of those questioned said they felt that the UK had generally become more competitive than other major European economies in recent times.  30% said they felt that the UK had become more competitive against other major European economies in the last 12 months.

The health of the sector was also reflected by the responses to questions on capacity.  84% of the respondents said they were either busy or operating almost at full capacity. This is however down from 88% in June 2011.

Some 46% of respondents said they were planning to increase staffing levels over the next 12 months. The main reasons for growth cited were improvement in demand from emerging markets, internal improvements in products and services and changes to the business environment such as low interest rates and the favourable exchange rate. 

High tech manufacturing bosses were much less confident about the general UK economy.  Only 15% of those interviewed said they felt positive about the general economy, significantly down from 31% in December 2010 and 30% in June this year.

Access to finance and energy costs – two key problems
UK high tech manufacturing bosses questioned also identified challenges for the sector. Access to finance continues to be an issue. 41% of high tech business leaders said that finance was available albeit on fairly demanding terms but a further 26% said it is either impossible to obtain, or obtainable only on unacceptable terms.

High tech manufacturers who were more pessimistic about the outlook for their business next year put this down to the external environment; the economy (40%), lack of demand (26%), and sector cut-backs (9%). A further 9% said that there pessimism was due to funding constraints.

UK high tech manufacturers were also asked to reflect on how business conditions had changed since the first banking crisis in 2007/8.  In response to an open question about what particular new challenges or concerns they face now, compared to before the financial crisis, the most frequently mentioned issues were, the export environment (20%), lack of investment and help from banks (13%), and the rising cost of materials (13%).

Significantly, 84% of businesses said high raw materials costs had previously impacted negatively on their business. Rising energy costs is also an issue with 48% of the respondents saying that it has affected the competiveness of their business.

Political and financial intervention seen as having little impact
Generally the UK high tech manufacturing leaders in the survey felt that efforts by the UK Government, central banks and European institutions to mitigate  current difficulties were having little impact.*¹  When asked ‘’to what extent do you think initiatives being taken by the Bank of England or the UK Government are helping to stimulate economic growth or at least mitigate the impact of current initiatives?”, only 23% of those questioned said they felt the Bank of England had taken measures that would help, with only 20% feeling UK Government initiatives had helped a fair amount (18%) or a great deal (2%).  However respondents were even less complementary about European intervention.  Only 11% said they felt member governments of the Eurozone had taken measures that would help and just 10% said they felt the European Central Bank had helped the situation.

The rise of the BRICs
UK high tech manufacturers see emerging markets as a strong driver of growth but also a potential threat. When asked to reflect on whether they thought the UK high tech manufacturing sector was becoming more or less competitive with other regions of the world 35% of respondents felt that UK companies has lost competitiveness to  the BRIC countries (Brazil, Russia, India and China) over the last year and 50% felt the UK was generally less competitive than the BRIC economise. 

GE UK CEO Mark Elborne commented: “These figures demonstrate UK high tech  manufacturing is still a growth story and can play a pivotal role to play in turning round the UK’s economy.  It is extremely encouraging to see that good proportion of these firms are expecting to significant growth in the next 12 months. 

"However  we need to ensure the conditions are right to help them to grow and they can take advantages of the opportunities on offer. Access to finance is important but other aspects will help such as ensuring the UK is developing the right skills base and the encouragement of an atmosphere of innovation and collaborative thinking.

“Confidence is vital. This survey shows high tech manufacturing continues to be a growth business for the UK and we mustn’t, in expressing concern for other parts of the economy, talk this down and damage the confidence of these businesses.”  

Note: Interviews took place in November and December, both before and after the Autumn Statement.]

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