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Custom Fittings News & Blog

  • Pound reaches new Heights as Manufacturing Rebounds

    12 Nov 2016

    The recovery of Britain’s manufacturing industry in August has prompted a spike in the value of the pound as it reached an impressive $1.33 as UK factory activity smashed all expectations. Indeed, the recovery from July’s contraction was the joint largest in Markit’s 25 year history of producing their PMI.

    The course correction of the pound has also triggered the IMF to suggest that the turbulence of the shock Brexit vote has ‘ebbed’. This comes just months after the IMF said that the Brexit vote could cause a vicious cycle of falling house prices and slower growth, and marks something of a row back from their earlier statement.

    The fund said that growth in the run up to the referendum had “surprised on the upside” whilst the measures taken by the BoE would boost growth and support the economy, helping to cushion some of the negative impact. However, the IMF still expects a sharp slowdown in growth during Q3, following growth of 0.6% in Q2.

    In a report ahead of this week’s G20 meeting in China, they said "In the United Kingdom, while second-quarter growth surprised on the upside, more recent data foreshadow a sharp slowdown after the referendum. Further ahead, the outlook will be affected by the degree to which the future relationship with the European Union can preserve the benefits of economic integration and trade…. While political uncertainty remains concerning the development of the relationship between the United Kingdom and European Union, short-term turbulence has ebbed."

    All of this has prompted that aforementioned rally in the value of the pound, but whilst it indicates a growing confidence in the UK, it could also have a negative effect.

    The record equalling recovery of the UK manufacturing industry came off the back of the falling value of the pound. Overnight, that meant that purchasing goods like our hydraulic hose fittings from overseas was much cheaper than before. That gave the UK manufacturing industry a competitive advantage which now may come to an end thanks to the rebounded pound.

    The cost of purchasing from the UK is still much lower than it was before the referendum result came in, but nevertheless, it remains the case that a more valuable pound could decrease overseas orders, and put the recovery in jeopardy. The threats of a rising pound are somewhat mitigated by the lowered costs of British manufacturing firms buying in from abroad.

    However, it remains to be seen whether levels of investment in the UK’s manufacturing companies will increase following the Brexit vote. Companies are naturally unsure of what deal exactly the UK will strike with its biggest trading partner, the EU. Should the UK fail to strike a favourable deal, it could well be we see another contraction in the UK’s manufacturing industry as companies withdraw funding and support.

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  • ONS Figures Show Manufacturing Pick Up in September

    10 Nov 2016

    When it comes to indicators of manufacturing progress, there are two names we look out for. The first, Markit, announced last week that UK manufacturing grew during the month of September at a steady clip. The other is the Office for National Statistics, who often weigh in slightly later than Markit.

    Now, we’ve heard from that latter organisation, and their comments on the British manufacturing industry make for very interesting reading indeed. Headlining their findings is the news that output from manufacturers rose by 0.6% last month, up from the 0.2% we saw in August and the -0.9% witnessed in July, immediately after the Brexit vote.

    Drugs makers and factories carrying out repairs were the strongest areas of growth, however total industrial production dropped by 0.4% in September after steep falls in the oil and gas sector which drove down the numbers. Though that news isn’t as bad as you might think, with the ONS pegging “widespread summer maintenance shutdowns” as the issue behind the drop in oil and gas production.

    Kate Davis, ONS statistician said:  "There are no obvious signs so far of either the weaker pound or post-referendum uncertainties affecting the output of UK factories, which continued broadly in line with recent trends."

    So far the referendum has had a mixed effect on manufacturing, with more overseas orders coming in thanks to the lowered cost of British goods but higher costs of buying from abroad meaning only certain businesses have benefitted from the falling pound. For ourselves, that’s meant greater exports of our JIC fittings and SAE adapters, but increased cost of purchasing steel.

    Despite the positive news, Q3 2016 was down 0.9% for manufacturing from the same period last year.

    Another blow to the manufacturing sector has come from US pharma giants Pfizer, who have announced that they’re to close two of their three UK manufacturing sites by 2020, potentially leaving 370 people out of work.

    The company have said that the decision was “in no way related” to the UK’s vote to leave the European Union in June this year and commended the “excellent work” of the employees at both locations. Instead, the company have said that the decision was reached after a consultation regarding their worldwide operations, which will also see their headquarters moved for the first time in 50 years.

    Pfizer aren’t the only pharma company planning on leaving the UK, however, with biosimilar specialist Hospira set to clear down following Pfizer’s $15bn purchase last year. Its packing and distribution site in Hampshire is also set to close, with the majority of job losses expected to happen there.

    Drug production is an oft-ignored by irreplaceable part of the UK’s manufacturing industry that, alongside car production, has kept manufacturing in the UK afloat for a long while. The government will be keen to keep drug companies on side during the transition away from the EU, and we’ll be keeping a close eye on any policy decisions they make.

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  • UK Economy ‘faces prolonged weakness’, Think-tank Warn

    24 Oct 2016

    Britain is facing four years of subdued economic growth if it negotiates to remove itself from the European Union, a leading think-tank has warned today. The warning comes after Theresa May’s government have taken an increasingly public and increasingly hard line on Brexit negotiations, in what have some called ‘hard’ Brexit. However, the think-tank’s findings were made before the current focus on May’s negotiating stance.

    The EY Item Club, who compiled the report, said they expect the economy to expand 1.9% this year, in line with their July forecast, but predicts growth to slow to just 0.8% in 2017. They suggest that the absence of a major negative impact on growth since the Brexit vote in June has propped up consumer spending, which in turn has ensured steady growth in the economy.

    However, public pockets are expected to take a hit over the coming months as the weak pound pushes inflation up to 2.6% next year.

    Manufacturers, like ourselves, meanwhile have seen a boost in overseas sales of items like welding fittings, but are adopting a wait-and-see approach in general. Firms are assessing the long term impact of a so-called “hard Brexit” on their business, which will lead to a fall in much needed investment of around 2% next year.

    Nevertheless, the Item Club are expecting the pound to stay depressed, which will continue to boost overseas sales and help stave off recession from the economy. In total, they suggest that the economy will grow at a rate of 1.4% in 2018, 1.6% in 2019 and 1.8% in 2020.

    Peter Spencer, chief economic adviser at the Item Club said: "It may look like the economy is taking the referendum in its stride, but we think that impression is deceptive, Sterling's shaky performance so far this month provides a timely reminder that troubles lie ahead."

    "It is increasingly clear that we are heading for a hard Brexit, and that our former European partners are determined to play hard ball," he said.

    "It is now consensus that, as we said in July, we will no longer have unfettered access to the European single market.

    "In that case, it is vital that we get unfettered access to cheap world markets in food and manufactures when we finally leave the EU in the spring of 2019.

    "That will mean trading under WTO rules initially, while we try to negotiate free trade agreements with the EU and others as best we can over the longer term."

    Of particular interest to manufacturing businesses with a large number of exports, Item Club are predicting an increase in exports of 4.5% in 2017 and 5.6% in 2018 – a huge leap over what businesses might currently expect. The economy, however, will be utterly reliant on export businesses to stay afloat.

    Finally, Item Club warn that certain sectors will be hit worse by the UK’s decision to leave the EU, including aerospace, automotive and chemicals, all of whom trade extensively with the EU. They suggest that these sectors may have to be propped up by subsidies or more robust industrial policy.

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  • Falling Pound Might Not Help Exports After All

    22 Oct 2016

    Since the British public’s decision to leave the European Union back in June, much has been made of the future of the UK manufacturing industry. Indeed, a large segment of the pre-referendum debate centred around how British manufacturing businesses would fare in a world where we might not have a free trade agreement with the EU.

    Immediately following the referendum, however, something curious happened. As the value of the pound fell to record lows, an upside emerged – it was suddenly much cheaper for foreign nations to buy British goods. For manufacturers like us who produce hydraulic hose fittings that’s meant a boost in sales. Indeed, even commercial brands like Burberry are claiming a leap in sales thanks to the low cost of buying British following the referendum.

    This has led many to speculate that we could be in for a return to the golden age of British manufacturing, but new research is urging caution, suggesting that a weak pound will do little for exports.

    Deutsche Bank have expressed scepticism about the notion that the fall in the pound will return Britain back to "a Victorian age in which British manufacturers export world-class products unencumbered by EU regulations".

    The note says: "International economics has evolved since the Victorian era, however, and world trade no longer consists of final consumption goods being bartered for raw materials."

    They also pointed out that whilst manufacturers’ final products would be cheaper for foreign customers, the imported raw materials that make up these products would be more expensive, virtually eliminating any benefit.

    The means they would only truly benefit from the fall in sterling if they add value during the manufacturing product, a tactic employed in successful industrial nations like Japan, the US and Switzerland.

    Presently, the UK occupies a role closer to an assembly line, which research says puts us in line with China, Hong Kong and Switzerland.

    All in all, experts are predicting a mixed future for the UK manufacturing industry, but much remains unanswered. Indeed, many of these estimates are based on the notion that we don’t have free trade with Europe. Presently the EU accounts for a third of all trade from Britain and if negotiations end up in a levy placed on UK trade to the EU.

    In that case, the cost of buying in raw materials from overseas and the cost of the levy on businesses could lead to a sharp fall in export orders for home grown manufacturing enterprises.

    However, should Britain land a favourable deal with the EU and manage to strike good trade deals around the globe, there’s little to say that manufacturing businesses should struggle in the medium and long term. Put simply, there are too many variables to accurately gauge how bright Britain’s manufacturing future is, but for the time being, we shouldn’t rely on the falling pound to prop up exports.

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  • UK Manufacturing Growth ‘Best for Two Years’

    14 Oct 2016

    With the Conservative Party conference taking place last week, we’ve heard a lot about Brexit. First of all, we now know the date which we’ll have triggered Article 50 by (March 2017). That shockwave sent the value of the pound to its lowest level in 31 years, but it did push the FTSE up to a near-record high. We’ve also had much talk about the way a post-Brexit, Theresa May led country will look.

    What we haven’t heard much about, however, has been manufacturing. Nevertheless, like we do best in this sector, we’ve just been getting on with the task at hand. The result? The fastest growth in UK manufacturing activity in more than two years.

    The Markit/CIPS purchasing managers’ index (PMI) for manufacturing in September rose to 55.4 during the month, up from 53.4 seen in August. Any figure above 50 indicates growth in the sector, showing fine progress.

    Economists have said that the better than expected performance has strengthened the case for the Bank of England to keep their interest rates on hold during November, as several bodies have upgraded their UK growth forecasts.

    Of particular note is that the growth was broad based, touching on all manufacturing areas, from cars to JIC fittings and SAE adapters. Indeed, more good news came in the news that for the second straight month, employment in the sector rose.

    The long term trend in manufacturing employment has been overwhelmingly negative, so an uptick in employment numbers comes as great relief.

    Rob Dobson, the senior economist at Markit, said the positive PMI reading suggested the sector was also on course to add to UK growth in the third quarter, adding: "The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the USA and a number of emerging markets”

    However, it’s not all good news for the sector. Though the value of the pound has meant that orders from overseas have picked up strongly, it’s also had a dramatic effect on the everyday running costs of UK manufacturers. Indeed, analysis has found that running costs for businesses has risen by a “double digit annual rate”.

    Nevertheless, economists are delighted with these latest results. Howard Archer, chief UK and European economist at HIS Global Insight, described the figures as “a serious and very welcome upward surprise” which was “undeniably encouraging” for the economy. "The robust September manufacturing purchasing survey seemingly further dilutes the case for the Bank of England to cut interest rates again this year," he added.

    This will all be good news for the new chancellor, Phillip Hammond. His autumn statement is just around the corner, and it’s expected to explain how the UK’s economy will survive amid the turmoil that our exit from the European Union is certain to bring. In those circumstances, he’s going to be delighted to have any positive growth in the economy.

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  • UK Manufacturing Output Rises Sharply in September

    29 Sep 2016

    British manufacturers have, surprisingly, enjoyed rising output and a steady flow of new orders over the last three months, according to a new survey by the CBI.

    The news comes after a mixed month of reports, alternately saying that the UK has seen no significant hit from the Brexit vote and that business confidence is at a 4 year low. Naturally then, confusion has run rife in the UK, but this latest report from the Confederation of British Industry delivers fresh evidence that manufacturing has come through the Brexit vote with relative strength.

    The survey of 481 manufacturers found that total order book balance held at -5, well above its long term average of -15 and matching the prediction poll of Reuters economists. It also found that manufactures’ expectations for the next three months orders had picked up strongly, despite a dip in export orders.

    The survey showed 18% of businesses reported total orders to be above normal and 22% reporting below normal levels of orders, leading to that -5% reading.

    The CBI’s chief economist, Rain Newton-Smith said “It’s good to see that manufacturers are enjoying a lingering summer with output running at a strong pace and manufacturers’ order books remaining solid, particularly amongst the food, drink and motor vehicles sectors,”

    "Our members tell us and our surveys show that the fall in sterling has boosted international competitiveness for many businesses, with export order books remaining well above average in September, despite weakening slightly,"

    “But there are plenty of challenges ahead for manufacturers as we adjust to a new relationship with the EU and the rest of the world.”

    Rain also urged the chancellor, Phillip Hammond, to help manufactures compete globally by promoting investment and innovation in the sector during his autumn statement in November. Mr Hammond is expected to set out how the government will use tax and spending measures to help support the post-EU economy. However, the real boon to British manufacturing businesses will be to secure free trade agreements with the EU and the rest of the world.

    The CBI also disagree with the BCC’s assessment that the falling value of the pound has only had a minor impact on exports, and will hurt growth in the medium and long term, saying “Our members tell us and our surveys show that the fall in sterling has boosted international competitiveness for many businesses, with export order books remaining well above average in September, despite weakening slightly,”

    As always, however, strong performance amid manufacturers is imbalanced, heavily favouring the motor vehicle and transport sectors, rather than made to order stainless steel fittings companies like us. It was chemical firms, however, which saw the sharpest downturn in fortunes as large overseas contracts dried up amid the uncertainty of Brexit.

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  • UK Business Confidence Slips to 4 Year Low

    28 Sep 2016

    With rumblings of a potential banking crisis in China and the ever-present threat of protracted negotiations with the EU looming, it’s perfectly understandable that businesses would feel under a dark cloud. However, few could predict the hit to confidence that has manifested itself within the UK’s businesses.

    According to Lloyds Bank’s Business in Britain Report, business confidence has slumped to a four year low. Expectations that sales, orders and profits would grow over the next six months slipped to an astonishingly low 12%, down from 38% that was reported in January. The remaining 88% of businesses all suggested that sales and orders would decrease or remain steady over the next 6 months.

    More than a quarter of the businesses surveyed cited economic uncertainty as the main threat to prosperity, whilst 18% said that the biggest danger came from a drop in demand, potentially caused by the Brexit vote.

    Manufacturing businesses weren’t exempt from this falling confidence, despite the fact that they enjoyed a brief pickup in orders following the Brexit vote. Indeed, all sectors reported a weakened outlook for demand, employment and investment, with services being the most affected, falling by an average 30 points in wholesale, leisure and hospitality.

    Tim Hinton, managing director at Lloyds said that the dramatic sliding of confidence since January’s report should be viewed in context of recent economic and political shocks, saying: “The EU referendum vote has introduced a level of uncertainty for companies as the UK decides on the best model for its future relationship with the EU, and this is likely to continue for the foreseeable future.

    “Whilst sentiment has fallen to a four-year low, it remains well above the lows reached during the global financial crisis of 2008-9.”

    The report gathers the views of around 1,500 businesses, and has poured fresh water on the hopes of a sustained exports boost. Though businesses like ours selling stainless steel ORFS fittings saw an immediate boost thanks to the decreased value of the pound (which fell to a 31 year low), the report says hopes of a global export sales rise have fallen 15% to just 20%.

    Employment also remained under pressure, with the number of firms suggesting they intend to recruit more staff over the next six months dropping for the fourth survey in a row. In total, the study found that the net balance of companies looking to increase headcount over the period fell by 14% to -1%.

    Perhaps most worrying was the statistic that businesses looking to up their capital expenditure had fallen from 14% in January to 0% in the latest survey. It indicates that British businesses as hunkering down for what could be another long hard year for the economy.

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  • UK GDP to Slow as Investment Decreases

    27 Sep 2016

    If there’s one thing we can all agree about the EU referendum, it’s that the instability caused by it has far from finished. From the weakened value of the pound to the continued threat of drawn out trade negotiations, it’s very clear that we’ve only just begun to walk the rocky economic path we’ve set ourselves.

    Now, the British Chambers of Commerce (BCC) have published their first set of forecasts since the vote to leave the EU, more than halving their GDP growth prediction for 2017, putting growth at just 1%, revised down from 2.3%. If correct, that would mean the worst economic performance in 7 years, matched only by 2009s performance as the UK emerged from the deep recession brought on by the global financial crisis.

    If you’ve been following recent news, you might well find this latest warning somewhat out of the blue. After all, didn’t the UK get a boost in exports immediately following the Brexit vote? Well, yes, it did, but the BBC’s gloomy report suggests that businesses are still nervous about the prospect of protracted negotiations and trade deals.

    Indeed, the BCC is cautioning against reading too much into the recent positive signs coming out of the manufacturing industry. Businesses like ours who produce JIC fittings and SAE adapters have seen encouraging signs in the weeks following the EU referendum, but Adan Marshall, the BBC’s acting director general said: “Although individual businesses continue to report strong trading conditions, the overall picture suggests a sharp slowdown in UK growth lies ahead,”

    “Our forecast suggests that the UK is likely to avoid a recession, but with the health warning that businesses are still digesting the result of June’s EU referendum and the challenges and opportunities to come.”

    The group represents a network of 52 chambers around the UK and expects the UK to see quarterly growth of just 0.1% in Q3 and Q4, down from 0.6% in Q2 (before the vote). For 2016 as a whole, the BCC has downgraded their growth forecast from 2.2% to 1.8%. In 2017, they predict a 1% growth before rising gently in 2018 to 1.8%.

    Keeping British GDP down are a number of factors, from the value of sterling, the form that future trade relationships take and the status of EU nationals in the UK workforce. As of yet, the Government have remained tight lipped around their plans for almost every aspect of a post-Brexit Britain. Trade, free movement and immigration all have a big impact on the way businesses operate, and if the UK is perceived to be taking a step back, it could affect investment in UK businesses.

    Businesses now have an eye towards Phillip Hammond’s autumn statement on the 23rd of November, as he lays out how the government plan to weather the Brexit uncertainty through tax and spending alterations. Until then, however, the UK’s manufacturing and business economies soldier on. Only time will tell.

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  • What Might Theresa May’s Manufacturing Policy Looks Like?

    15 Sep 2016

    There’s no escaping the fact that for any new Prime Minister, there are certain issues that have to be addressed if they’re going to consider their premiership a success. Perennial issues like housing and the NHS are always investigated, but in 2016, it’s increasingly vital that the rot found in the UK’s manufacturing industry is stopped as soon as possible.

    Currently making up around 10% of the nation’s GDP, manufacturing is a vital part of the country. It has, however, been in a period of sustained decline. For decades now, actually. With the rise of China the closure of Britain’s pits, the UK began to see manufacturing as a secondary industry to services, which dominate the UK’s current GDP. Things got worse during the financial crash, and the UK manufacturing industry still hasn’t come back from the damage done during that period.

    With the realities of Brexit now looming and UK manufacturing hitting its lowest post in almost three and a half years, the time has come for a serious review into the UK’s industrial policy. So far, Mrs May has announced that she’s chaired the first meeting of the "Cabinet Committee on Economy and Industrial Strategy" in her Downing Street offices, bringing together the heads of 11 other ministries to set out her stall for a state-supported industrial comeback for a post-Brexit Britain.

    That’s already a dramatic step, given that the concept of industrial strategy has been dead since the days of Mrs Thatcher. We have since found that the meeting was focussed on how the government could support growth in different areas of the country, in particular Wales and the North. Finance minister Philip Hammond told the meeting that by reducing the productivity gap between the rest of the country and London and the southeast, economic output could rise by as much as 9%, adding a total of £150bn to the economy.

    One way to do that might well be to implement closer cooperation between the state and profit making industries like carmakers and aerospace, which has been trialled in limited areas of the UK to some success, but may well be expanded upon and brought close to the heart of government thinking.

    That’s all well and good for big businesses, but what about smaller ones? Well, actual detail is scarce, but it’s a safe bet to assume that the strategy will include greater provisions for traditional infrastructure like roads and rail, with new funding for better broadband and lower energy costs. All of these policies would help to support new and existing businesses like ours, providing stainless steel tube fittings and other parts to manufacturers and businesses around the globe.

    Finally, we might well expect Mrs May to push for more training of highly-skilled workers that the manufacturing industry says it needs to survive. That could mean the expansion of vocational colleges or even more funding to help apprentices go do degrees which can help them progress in the manufacturing industry.

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  • Manufacturing Recovers Following Brexit Shock

    12 Sep 2016

    Here at Custom Fittings we’ve been chronicling the ups and downs of the UK’s manufacturing industry for years, and it’s fair to say that the uncertainty surrounding Brexit put a huge dampener on the industry’s ability to thrive. Little did we predict though that the UK’s majority decision to leave the EU would have such a strong impact on the UK manufacturing industry, however.

    July saw the worst performance for the UK manufacturing industry in 6 years as it slipped into a recession reading of 48.3 in Markit/CIPS purchasing managers index (PMI). Anything before 50 is considered a contraction of the space, and anything above 50 is expansion.

    However, August saw a return to growth as the manufacturing sector recovered from the shock of Brexit and actually began to benefit from the fallout of the vote. Indeed, Markit’s PMI for August shows a reading of 53.3.

    Part of the reason for this remarkable recovery, Markit suggest, is thanks to the weakened pound that followed the Brexit vote. Because the pound was worth less compared to other currencies, it makes the cost of exporting goods from England cheaper for countries around the world, which helped to push sales. However, it also pushed up firms’ costs, the report suggests.

    Markit have said that the month-on-month increase in PMI level is now the joint largest in the survey’s 25 year history. "The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum," said Rob Dobson, senior economist at Markit.

    "The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the US, Europe, Scandinavia, Middle East and Asia," he added.

    Those results line up with last week’s CBI survey, which found that export orders were climbing at their fastest rate in two years. It should be noted that, like many manufacturers, though we’ve seen strong demand for our products like welding fittings, much of the future of the UK’s exports depends on Brexit negotiations.

    All of this has brought into question the Bank of England’s decision to reduce interest rates to a historic low of 0.25%. Laith Khalaf, from the investment firm Hargreaves Lansdown, said that the latest PMI figures were evidence that the bank made the wrong call. "It certainly seems that companies and consumers alike are carrying on with business as usual now the referendum is disappearing into the rear view mirror," he said.

    "There's still a long way to go until Britain leaves the EU, and in the meantime, businesses still need to make money, so they can't just sit on their hands.

    "However, the gathering pile of robust economic data might start to dissuade policymakers from any further monetary easing," he added.


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