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Custom Fittings News & Blog
03 Mar 2017
British aerospace companies suffered something of a mixed 2016, with the fall of the pound causing factory prices to rise at their fastest rate in years. However, that came along with a sharp uptick in orders from overseas, thanks to buying British being cheaper than ever before.
No company typified the tough year like Rolls Royce. As one of the leading supplier of jet engines around the globe, Rolls Royce enjoy a position within the industry envied by a great many. 2016 though saw the company report a pre-tax loss of £4.6 billion, thanks to a number of costly one off payments for the company.
They included a £671 million corruption settlement made after cases with UK and US authorities and a £4.4 billion write off from currency related contracts. It’s the latter which highlights just how destructive the collapse of the pound was to aerospace companies.
Like many international businesses, Rolls Royce take out long term currency trades in order to shield themselves from fluctuations in currency valuations. However, these were designed to protect RR from a fall in the dollar, not the pound. So when sterling took a dive after the UK voted to leave the European Union, the company had to take a £4.4 billion hit.
Those payments mask the fact that Rolls Royce actually did better than many analysists predicted they would, posting an otherwise profit of £813 million – although it was down from £1.4 billion for the previous year.
Yet, the aerospace industry is optimistic about the coming year. In a press release circulated last week, it was announced that 69 new aircraft rolled off the production line in January, which despite being down from the exceptional December witnessed (181 aircraft), remains a strong January performance for the industry.
A major order was also placed for single aisle engines, pushing the engines backlog up to record breaking levels, with manufacturers now having 23,392 to deliver – providing a huge boost for Aerospace testing fittings companies like us.
Paul Everitt, Chief Executive of ADS Group, commented: “January’s figures show a confident start to the year for the aerospace industry. 2017 is set to be a defining year for UK industry as it asserts its strengths in tough international markets against the challenge of Brexit.
“Through the launch of its industrial strategy Green Paper, the government has reaffirmed long-term commitment to work with the aerospace industry – through the Aerospace Growth Partnership – in support of R&D and supply chain competitiveness. This approach is encouraging world-leading companies to invest in new facilities, technology and skills, and positioning the UK to win work on future aircraft programmes.”
03 Mar 2017
There’s no denying that private space flight companies like SpaceX and Virgin Galactic see huge potential on the possibility of so-called “space tourism”, but they’re not the only space flight companies interested in the space. Major national agencies like NASA are also keenly interested, but there’s a number of issues that have yet to be resolved. Key among those? Where these commercial and passenger rockets would fly from.
In an announcement last month, the government announced that they wished the UK to become a world leader in space travel by 2020, beating out the likes of the United States and other world superpowers in the process. The plan centres around building spaceports which would allow consumers to fly out in to space, and was launched (if you’ll forgive the pun), by Jo Johnson, Boris’ brother and current science minister.
He said: “We will cement the UK’s position as a world leader in this emerging market”, adding “Space flight offers the UK the opportunity to build on our strengths in science, research and innovation. The Spaceflight Bill was later unveiled in parliament. Some of the port locations being considered are Newquay Airport in Cornwall, Llanbeddr airport in Snowdonia and Prestwick airport, near Glasgow, though no locations have been officially chosen.
As a leading UK supplier of Aerospace testing parts, we’re delighted by the government’s announcement that it wishes to push the accelerator on spaceflight innovation in the UK. Each and every day we work with engineers to solve complex problems with custom fittings, and we know that investment in this area could yield a huge bonus for the UK’s manufacturing and technology sectors.
“It provides opportunities to expand into new markets, creating highly-skilled jobs and boosting local economies across the country. That is why it is one of the key pillars of our Industrial Strategy.
“We want to see the UK space sector flourish, that is why we are laying the groundwork needed for business to be able to access this lucrative global market worth an estimated £25 billion over the next 20 years”, Mr Johnson added.
The draft bill revealed in parliament also grants researchers the permission to perform experiments in zero gravity to help battle bugs like MRSA and Salmonella. Indeed, it’s thought that only 10% of the money generated from these commercial space flights, with the rest coming from missile launches, science expeditions, refuelling missions and more.
One potential roadblock in the way of these spaceports would be the planning permissions required to create them. The United States is blessed with a huge landmass, with thousands of square miles of uninhabited land. The UK, on the other hand, does not. With the noise and pollution created from spaceflight, all locations would have to be far away from populated areas, potentially causing an issue in protected areas.
Nevertheless, with such strong government support, the UK’s aerospace industry looks set for a real boost over the next decade.
01 Mar 2017
UK manufacturers order books have swelled in the first three months to February as the weaker pound boosted output, the Confederation of British Industry (CBI) have said. However, they warned that the weaker pound has boosted expectations of factory gate prices to an almost six year high.
The survey found that order books improved considerably for the fourth consecutive month over the quarter, hitting the highest level in two years. This renewed order strength was driven by mechanical engineering and metal products businesses like ours, who produce stainless steel welding fittings. Indeed, optimism surrounding production across the sector was found to be at its highest level in two years.
CBI’s survey took in 47 manufactures and found that 43% expected output to rise over the next three months, compared to just 10% which expected a fall, giving a positive balance of 33% - the highest since September 2013.
That optimism is borne out by economists like Ruth Gregory at Capital Economics, who said that the data found that the “manufacturing sector is getting back on its feet” following a worrying 2016, before going on to state that the sector is on course to grow 1.5% this quarter.
"With manufacturing exports set to benefit from the fall in sterling and solid demand from abroad, the future looks more promising for manufacturing activity than it has done for some time," she said.
That growth can partially be attributed to the weakened pound making British products cheaper abroad, although that weak pound has also driven up the cost of importing dramatically.
As such, the survey also found that 38% of manufactures expected their consumer prices to rise over the next three months, with inflation expectations picking up “notably” within the food and drink sector. Just 6% of manufacturers felt that they would be able to cut prices over the same period, resulting in a 32% balance, the highest since April 2011.
That’s bad news for consumers, which have been tightening their belt post-Brexit and will have to do so further as everyday essentials like food and drink.
As a result, Rain Newton-Smith, CBI chief economist, urged the government and chancellor to offset the cost pressures being felt by businesses by bringing forward a planned measure to link future business rate increases to the consumer prices index (CPI), instead of the real prices index (RPI) to 2018, instead of from 2020.
She added: "Over the longer term, investment in education and innovation as part of the Government’s industrial strategy will really need to deliver in the face of increasing political headwinds."
The value of sterling is set to be in flux for a good while yet, as the government negotiates with Europe regarding the terms of separation and negotiates with powers around the world for trade deals.Read More
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."