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Custom Fittings News & Blog
22 Feb 2017
In a shock for the manufacturing industry, one of the titans of British manufacturing has posted the biggest loss in their history.
Rolls Royce, supplier of jet engines for companies around the world, posted a loss before tax of £4.6 billion for 2016. However, with one-off costs stripped out, the company’s underlying profit was better than many experts had predicted. Rolls Royce is a separate company to the car making division.
One off costs for 2016 included issues like a £671 million corruption settlement made after cases with UK and US authorities and a £4.4 billion write off from currency related contracts. The reason for that? Well, like many international businesses, Rolls Royce takes out long term currency trades in an effort to shield themselves from fluctuations in currency valuations.
However, this was designed to protect RR from what was considered the most likely scenario – a fall in the dollar. Indeed, many were put in place before the EU referendum was even announced. That has meant that since the UK voted to leave the EU and the value of the pound has fallen significantly, Rolls Royce have had to make that £4.4 billion write off.
Profits aside from these costs sat at £813m, down from £1.4bn from the previous accounting year, but still a respectable profit.
Rolls Royce are expecting 2017 to see a “modest performance improvement”, though chief executive Warren East said that more has to be done to bolster profit margins within the company.
"We must ensure our wide ranging business transformation programme delivers the full benefits expected, not only in terms of cost savings but also the cultural and behavioural changes necessary to ensure the transformation is sustained and high standards of business conduct are maintained," said Mr East.
"These are essential if we are to become a more trusted, resilient company."
Rolls Royce continue to expand at a remarkable pace, which is slowing down profit growth, but they will be susceptible to the weakened pound across the year.
The value of sterling has meant that whilst it’s cheaper for overseas companies to buy British, it’s much more expensive for UK manufacturers to buy from abroad. This has driven costs up for many, and is tipped to result in increased prices for the consumer later in the year.
As a UK supplier of BSP hose fittings and PFTE hose fittings, we too are susceptible to these increases. However, by buying raw materials from the UK, the cost increase has been negligible. Nevertheless, the effect on UK manufacturers shouldn’t be underestimated. A report earlier in the month found that factory costs rose at their fastest rate since records began in 1992.
Rob Dobson, Senior Economist at Markit said: “UK manufacturers have reported a bumper start to 2017, but are also seeing prices rise at an unprecedented rate. Factory output growth accelerated to a 32-month high in January, as solid domestic demand continued to drive production volumes higher. There were signs that the boost to export orders from the weak exchange rate was waning, as growth of new business from abroad slowed sharply.”
14 Feb 2017
For decades, growth in the UK has been led by a strong services sector first, and a flagging manufacturing sector second. However, new survey data released within the last week seems to show that the pendulum is beginning to swing in the opposite direction.
Growth in the country’s dominant services sector eased back during January to the slowest pace for four months, according to the report published by Markit. The Markit/CIPS inde fell from 54.5 in January from 56.2 in December.
Whilst potentially foreshadowing bad news for the services economy, it remains the sixth consecutive month of growth in the services sector, providing a boost for the soon-to-be post-Brexit economy. Any number above 50 indicates growth, whilst anything below it indicated contraction.
The fall in growth follows a number of other published surveys that have indicated a fall in consumer borrowing and confidence. Lloyds, for example, found that customers were paying more for essentials because of higher prices trickling down. However, we’ll have to wait a couple of weeks to confirm if that slowdown is anecdotal or genuine.
Indeed, Samuel Tombs, chief UK economist at Pantheon Macroeconomics believes that these numbers might overestimate how well the services sector is doing as “it excludes retailers, who likely will find that consumer demand crumbles as they pass on higher import prices”.
Meanwhile, the PMI survey for manufacturing has shown that growth in the sector accelerated to its fastest rate in years off the back of higher orders from home and abroad. It’s a sign that the industry could be back on the rise, and might well help the UK rebalance itself when Article 50 is triggered later in the UK.
However, it’s not all good news for manufacturing as costs soared to their highest since Markit began taking records in 1992, which could well limit the impact of a manufacturing resurgence.
Indeed, it’s thought that the increased costs of manufacturing could lead to higher costs for consumers, further limiting the services sector. As a company which specialises in JIC fittings and hose fittings UK, primarily sold to other manufacturing businesses, the cost of increased materials is poised to hit.
Rising prices will likely constrain growth for 2017, said Scott Bowman, UK economist at Capital Economics. He’s just one of the many economists expecting that increases this year will erode the spending power of the consumer in the UK.
Nevertheless, Mr Bowman said “We think that these forces will result in a rare period where manufacturing sector growth is higher than that in the services sector.”
Capital Economics latest forecast predicts that saving rates will fall to their lowest level since 1963 as consumers borrow to cope with the rise in prices, rather than cut back on spending. Whether these forecasts are correct will be hotly contested over the next few years, but if consumer spending falls sharply, then so will the economy as a whole.Read More
10 Feb 2017
The weakened pound was always going to cut both ways for UK manufacturers. Following on from the vote to leave the United Kingdom, the immediate devaluing of the pound meant that yes, UK products were cheaper to buy for countries around the world, but also the costs for factories would rise in tandem.
Until January, however, manufacturing costs were being outstripped by the increase in demand for British product, both domestically and from overseas markets. Worryingly, that trend did not continue into 2017 as data firm Markit recorded the biggest ever increase in input costs for UK manufacturers, sending its input prices index to an all-time high of 88.3.
The highest reading since measurements were initially taken in 1992 is a significant rise from the already steep 77.7 recorded in December, and is high above the 50 reading which indicates no change.
More than half the firms surveyed by Markit blamed the fall in Sterling with the increase in the cost of raw materials, but factors like the rising price of oil is also a factor. Worryingly for consumers, there are initial signs that manufacturers are starting to pass these costs on to consumers, as Markit’s output index posted one of its biggest jumps ever.
If that trend is echoed around other sectors, it could indicate that the UK is in line to see some strong inflation.
Nevertheless, UK manufacturers reported a fantastic start to the year with factory output growth growing at its fastest rate in 2 and a half years. The main source of the new orders was from within the domestic market, according to the survey, as British manufacturers and companies bought stainless pipe fittings and NPT fittings, alongside other British made goods. Overseas orders also saw a slight bump in sales.
Rob Dobson, Senior Economist at IHD Markit said: “UK manufacturers have reported a bumper start to 2017, but are also seeing prices rise at an unprecedented rate. Factory output growth accelerated to a 32-month high in January, as solid domestic demand continued to drive production volumes higher. There were signs that the boost to export orders from the weak exchange rate was waning, as growth of new business from abroad slowed sharply.
“The big numbers coming out of the January survey were for the price measures. Input cost inflation spiked to the highest seen since data were first collected in 1992. Over 55% of companies’ link rising costs to the exchange rate. However, we’re also seeing more companies reporting domestic supplier price hikes resulting from the rising cost of commodities such as fuel, oil, plastics and steel. With cost pressures increasingly feeding though to higher selling prices at factories, it looks inevitable that consumer price inflation will rise further in coming months.
“The question is whether increased cost inflationary pressure will act as a drag on manufacturing growth going forward. Companies seem fairly sanguine on this front, as a new index tracking business confidence signals optimism climbed to an eight- month high. Taken alongside robust output growth, rising new order inflows and job creation, all signs are pointing to a solid contribution to UK GDP from manufacturing during the opening quarter of 2017.”Read More
08 Feb 2017
The Prime Minister, Theresa May, has announced a new interventionist industrial strategy in a bid to drive the UK away from an over reliance on a services sector, which currently dominates the UK economy.
The announcement comes after mounting pressure from members of her own cabinet and heads of the British manufacturing industry to make plans for the UK’s struggling manufacturing industry going forward. Indeed, the calls for answers have only grown louder since Mrs May announced that yes, the UK would be leaving the single market in the coming years.
Broadband, transport and energy are highlighted aspects of the plan which bid to “align central government infrastructure investment with local growth priorities”. The ten point plan outlined by the PM involves:
- Investing in science, research and innovation
- Developing skills
- Upgrading infrastructure
- Supporting business to start and grow
- Improving government procurement
- Encouraging trade and inward investment
- Delivering affordable energy and clean growth
- Cultivating world-leading sectors
- Driving growth across the whole country
- Creating the right institutions to bring together sectors and places
Further to this, the government will set out a green paper with the ways that they can help to support businesses by addressing onerous regulatory barriers and agreeing trade deals to make up for the fact that UK manufacturers are soon to lose access to the single market.
Additionally, the government will look to support those who wish to set up establishments which encourage innovation and skills development, alongside boosting STEM skills, digital skills and numeracy whilst investing £170m in new technology institutes.
That fund will be known as the Industrial Strategy Fund and will look to benefit “smart energy, artificial intelligence and 5G mobile broadband”, however, such a small sum wouldn’t affect research and deployment in these areas dramatically.
In total, £4.7bn in additional funding will be provided by the government for R&D, as announced in November of last year. As part of the plan, the government are holding a "consultation on what should be our priorities for a long-term industrial strategy".
The director-general of the CBI, Carolyn Fairbairn said "It must help fix the country's productivity problems and remove the regional inequalities that have dogged our country for generations, having a positive impact on living standards, wages and the future opportunities of many people."
However, she stressed that it will be through skills training, regulation and infrastructure that the government will see the best results, rather than through cash injections. A statement that we, as one of the leading suppliers of welding fittings in the UK, wholeheartedly agree with.
However, Labour’s shadow business secretary, Clive Lewis, questioned how much money the government was investing into the strategy, saying "We await further detail, but what's been announced so far will fall far short of getting us back to where we were in 2010, let alone equip our economy for the challenges of the 21st Century."
Nevertheless, the announced plan isn’t a million miles away from what UK manufacturing has been asking for over the last five years. Whether what comes out at the end of the consultation period is workable is something else entirely, but this is welcome news so early in 2017.Read More
20 Jan 2017
Earlier this week, Theresa May broke the months long silence on what kind of future we can expect with the European Union. With Article 50 due to be triggered later this year, successive journalists, politicians and industry heads had pressed the government to reveal their plan for Brexit.
In a speech delivered on Monday, Mrs May said that the UK “cannot possibly” remain within the European single market, which ensures free trade between all European nations, because that would mean “not leaving the EU at all”.
It’s a blow that many have expected, but not one that was touted as a serious possibility by the Leave campaign during the referendum campaign. During the same speech, the PM insisted that she would push for the “freest possible trade” with European nations, but that the EU trying to “punish” the UK for leaving would be “an act of calamitous self-hard”. She also added that “I am equally clear that no deal for Britain is better than a bad deal for Britain”, words which may strike fear into the heart of the UK’s manufacturing business.
In response, Labour have warned of the “enormous dangers” that the PMs plans posed for the UK, and the European Parliament’s chief negotiator said that there could be “no cherry-picking” by the UK in talks.
But what does this mean for UK manufacturing? Well, it’s perhaps the single most important event to happen to the industry in a generation.
Put plainly, around 44% of all exports from the UK go into the European market. At present, all of those exports to Europe are free from duty, which makes them more affordable for overseas markets and therefore, more popular.
Mrs May appears to be strapping herself in for what commentators have begun to call a “hard Brexit”, wherein the UK receives little to no concessions from the EU on the way out. For British manufacturers like us who produce BSP hose fittings and PTFE hose fittings, the prospect of a levy being placed on our goods as we attempt to sell to the EU could be devastating to the industry.
Specifically, Mrs May said on the prospect of an agreement with the EU that any such agreement must "allow for the freest possible trade in goods and services", Mrs May said.
"But I want to be clear: what I am proposing cannot mean membership of the single market.
"It would, to all intents and purposes, mean not leaving the EU at all.
"That is why both sides in the referendum campaign made it clear that a vote to leave the EU would be a vote to leave the single market."
Nevertheless, the PM has said that the UK won’t budge on controls for immigration from European nations, something which is a requirement if free trade is to be possible. Much of the PR spin after the speech has been around the way that the UK will be free to set up trade deals with the rest of the world – something the UK manufacturing industry will eagerly await.Read More
13 Jan 2017
There’s no doubting that for UK manufacturers, 2016 was a – shall we say – interesting year. What began under a cloud of Brexit uncertainty turned to shock as June’s vote to leave the EU rocked the industry. What followed was a sharp increase in export orders, thanks to a devalued pound. In turn, that meant high employment numbers.
All good news then, but economists remained worried about the state of the manufacturing industry going in to 2017. With investment in the UK manufacturing down and the costs of buying materials from abroad rising sharply.
As such, it’s come as a pleasant surprise to find that new figures from Markit/CIPS have found that during December 2016, British manufacturing growth rose to a two and a half year high, fuelled by new orders from abroad.
Off the back of these new orders, the manufacturing PMI rose to 56.1, high above the 50 reading which indicates no change. That’s the fastest growth since June, 2016, and handily beats out November’s strong reading of 53.6. An independent poll of economists in Routers suggested that December would post a number of 53.1.
Markit found that though domestic and export orders grew within the month, so did the cost pressures that factories are facing – thanks largely to the devalued pound. The weakness of the pound has caused significant issues in sourcing parts and materials from overseas, and economists are suggesting that these price rises are going to feed in to consumer prices during 2017.
Rob Dobson, Senior Economist at Markit, said: “The UK manufacturing sector starts 2017 on a strong footing. The headline PMI hit a two-and-a half year high in December, with rates of expansion in output and new orders among the fastest seen during the survey’s 25-year history.
“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5pc, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.
“The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins. A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward.
On the prices front, higher input costs continued to feed through to increased selling prices, with rates of inflation remaining among the highest seen during the survey history. Of the companies citing a cause of higher costs, 75pc linked the increase to the exchange rate.”
For all the talk of the weakened sterling, however, December’s numbers prompted the pound to rebound to its highest value in two weeks, alongside the FTSE100 rising to its highest all time level of 7,205.21.Read More
13 Jan 2017
The New Year is a time for optimism, a time when hope runs freely and the potential of the next 365 days feels almost tangible. Whilst most of us are busy looking at our prospects in our love and business, the UK’s manufacturing organisation (the EEF) have been looking towards the future of manufacturing.
Now, in a survey of executives across the manufacturing sector, the EEF have found that UK manufacturers are positive and ambitious about their personal business plans for 2017, despite the expectation that the many economic risks of 2016 will be carried forwards into this year.
The EEF found that half of the manufacturers found that just over half of manufacturers saw more opportunities than risks in 2017, but a great many were still worried about what the year might bring.
In particular, manufacturers remain unsure about the Brexit vote, and among the risks most concerning from 2016 executives picked significant movements in exchange rates, economic volatility in major markets (like China) and uncertainty around the UK’s place in the EU going forward.
In regards to exchange rates, the report found what many of us had expected, that the post-referendum weakness of the pound had increased import costs. In turn, this has led to higher construction costs. Executives said that this continues to be a concern into 2017, and will reduce profit margins during the year. They also couldn’t rule out this resulting in price rises for consumers.
It’s also impossible to rule out the role that political uncertainty could have on the economic stability of major nations. Elections in France and Germany in 2017 will test the viability of the UK’s biggest trading partner and Donald Trump’s isolationist trade policy could have disastrous implications for the US, as well as the rest of the world. Specifically, manufacturers said that Trump’s policies could threaten growth in emerging markets, which in turn could weigh heavily on global trade.
Though this wouldn’t have a dramatic direct effect on manufactures like us, who produce JIC fittings and hose fittings UK, the knock on effect of a depressed global trade would cause damage to manufacturers in ever sector.
Despite these myriad concerns, more than half of the survey’s respondents said that their company would increase investment in technology and innovation. Meanwhile, 44% said that they would increase their marketing efforts and brand promotions in 2017.
Another 44% said that they would look into moving into the export market in an effort to deliver their strategic business plan, whilst other actions identified by bosses was included vertical integration, increasing services revenue and diversifying into new supply chains.
Commenting on the survey findings, Terry Scuoler, CEO at EEF said in a statement, "Global political upheaval means that 2017 looks set to be another bumpy ride, with manufacturers forced to navigate uncertainty, unpredictable economic conditions and a number of risks that have been amplified by Brexit.
"Against this backdrop, a smooth journey is far from guaranteed, but firms are strongly attuned to the challenges and remain fully focused and determined to deliver their long-term plans for growth."
19 Dec 2016
Amidst all the doom and gloom of post-Brexit economy predictions, there is, undoubtedly, the potential for a thriving economy outside of the European Union. With the correct trade deals and some favourable winds behind us, we could see Britain prosper and shine.
Now, a new report from the Centre for Policy Studies by Rishi Sunak (Conservative MP for Richmond) says Brexit gives Britain the opportunity to create American-style “free trade zones”, which, in turn would fuel a massive expansion of manufacturing and trade.
The initiative claims up to 86,000 jobs could be created if it’s as successful here as it is in the USA, and would benefit the UK’s most deprived areas. The rules of the EU current make such initiatives impossible, as states are constrained from setting their own customs rates and regulations.
Free trade zones (or Free Ports) could be based around British harbours and would be within our geographic boundary, but ‘outside’ it for the purposes of customs duties. It means that goods and parts could be imported, manufactured or re-exported from the zone without incurring the usual domestic import procedures or tariffs.
Mr. Sunak has stressed how the tax advantages could encourage more manufacturing and processing in Britain, something which would be important for Britain to succeed in a post-European environment. Presently, a large proportion of the economy comes from our large and successful service economy. However, a diversification of the UK’s economy is required if we’re to grow stronger in the future.
Meanwhile the EEF have urged the Chancellor to use his Autumn Statement to tackle the fallout from political uncertainty and reassure nervous businesses by announcing measures to boost investment and growth in manufacturing.
The manufacturing trade body said research shows that one in four manufacturing companies are withholding investment plans amidst the increased political uncertainty. They said that Mr Hammond should use his statement later this month to introduce a “moderate fiscal stimulus package” that would support UK manufacturers like us, who produce PTFE hose fittings.
Figures last week indicated that manufacturing output rose 0.6% during September, beating economists’ forecasts of a 0.4%. However, that news was bracketed by the fact that over the last 12 months, manufacturing output had only climbed 0.2% as the sector struggled to maintain any kind of upwards trajectory.
Terry Scuoler, chief executive of EEF, said: “The whole of Government must get behind UK businesses and demonstrate a clear appreciation of the need to back such a strategy, backing sectors while also tackling systemic problems such as skills, energy costs and infrastructure weaknesses.”
This all comes at a time when an alleged internal memo from the Government laments the lack of a Brexit plan, pointing to understaffed government and disagreements within the cabinet meaning that the direction of Brexit is deeply confused. The government have been quick to disavow the note, saying that they don’t recognise it, but nevertheless, they appear to be grasping for a strong public position on Brexit.Read More
15 Dec 2016
Following stronger than expected growth in the post-Brexit months, it had appeared that the UK’s manufacturing industry had found a strange success. The falling value of the pound meant that for companies buying British from abroad, our goods were significantly cheaper than they had been before.
On the other side of that coin, the cost of buying materials from abroad jumped in price for British manufactures, and surveys indicated that investment into UK manufacturing businesses was put on hold amid the uncertainty.
Nevertheless, the jump in export orders meant that manufacturing growth grew steadily into September. However, if numbers from the Office for National Statistics (ONS) are to be believed, that growth came to a shuddering hold in October.
A new study from the ONS suggests that output from manufacturers fell by 0.9%, down significantly from the growth of 0.6% seen in September. In total, industrial production dropped by 1.3% in October after falling 0.4% in September, marking the biggest fall in overall production within the UK since August 2013.
The ONS point to the temporary closure of a major oilfield as part explanation of the fall, saying "The increase can largely be attributed to continued maintenance to the Buzzard oilfield in the North Sea," but economists were still surprised by the numbers, which had been predicted to be positive.
The fall in industrial production has dealt a blow to the UK’s GDP growth prospects in the final quarter of 2016.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "With much of the latest survey evidence being decent and retail sales surging in October, we had believed that there was a good chance that UK GDP growth in the fourth quarter could match the resilient 0.5% quarter-on-quarter achieved in the third quarter,"
"October's 1.3% drop in industrial production puts a significant dent in fourth-quarter growth prospects, as it now looks odds-on that the sector will contract in the fourth quarter and possibly markedly - even allowing for the fact that there could be a marked bounce-back in oil and gas extraction as the oilfield comes back into operation.
"While industrial production only accounts for 14.6% of total output, contraction would be a blow”, he further stated.
Indeed, these numbers come as a surprise to most manufacturers like us, who produce BSP fittings for clients around the world, primarily from British sources materials. Nevertheless, it’s clear from the ONS numbers that certain areas of the UK’s manufacturing industry have suffered significantly during October.
Markit, meanwhile, suggested that October was a strong month for manufacturing growth, setting the PMI for October at 54.2 – significantly higher than the 50 which marks an unchanged sector, They did, however, suggest that manufacturing output was beginning to fall, albeit still in the positive numbers.
It’s unclear at this time whether CIPS will respond to the ONS report, but with significant discrepancies between the two it wouldn’t be a surprise to hear more about this as we approach the end of the calendar year.Read More
15 Dec 2016
Long one of the less touted aspects of the British economy, the UK manufacturing industry has recently roared back into the public conversation. Side-lined by a booming services economy and not one of the more glamourous areas of the economy, the Brexit vote has resurrected focus on the sector, with various sides either claiming that it’s doomed if we go it alone in the world or could become the centrepiece of a renewed United Kingdom.
The months following the Brexit vote have been fascinating, as the weakened pound has spurred on purchases of British product from abroad but held back companies from investing in themselves as uncertainty set in.
Now, a new report from the manufacturers’ organisation EEF claims that manufacturers are seeing a “delayed recovery”, with increased output and orders along with a boosted optimism for jobs. They claim that the sector is now regaining ground after what they described as a “sluggish” 18 months. Despite this, they said that manufacturing will contract in 2017.
The organisation which polls British manufacturers lie us who produce dowty seals said that the pressures of inflation and the significant price rises in the pipeline are factors which will weigh heavily on domestic activity during 2017.
EEF chief economist, Lee Hopley said: “This is the most upbeat reading on the state of manufacturing we’ve seen for some 18 months and signals the start of brightening conditions, which had been briefly knocked off course following the referendum.
“This anticipated turnaround can be attributed to a range of factors including the resilience, thus far, of the UK economy but also the strengthening of demand in a number of major markets. Critically, this should spur some new investment and recruitment activity to fulfil new customer demands.”
In 2017, the EEF expect manufacturing output to fall by 0.2%, and the economy as a whole to grow by a modest 1.3% as Brexit negotiations begin to hit harder on the economy.
Disappointingly, the new chancellor Mr. Phillip Hammond chose not to use the Autumn statement (his first in charge) to discuss reform for the manufacturing sector. Groups within the sector had gone on record suggesting that red-tape removal and tax breaks would help shore up the industry for the darker days ahead, and it was widely expected that manufacturing would get a nod during his statement.
Unfortunately, no such mention came around. The chancellor has spoken about the fact he has “no doubt” that Britain can strike a free trade deal with the likes of China, but the government seem cagey about the prospect of a free trade deal with Europe, who purchase around half of the UK’s exports.
Nevertheless, Britain remain in the EU for the time being having not trigged Article 50 yet. To date, only Nissan have been made promises regarding the UK’s future in regards to trade deals, with the rest of the manufacturing industry enduring a cloud of uncertainty which is likely to continue to dampen profits.Read More