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Manufacturing leading the UK out of recession

Manufacturing is leading both the Scottish and UK economies out of recession by outperforming the service sector, but only thanks to domestic demand and not exports.

BRIGHT SPARK: The sector is performing well, but mainly due to domestic demand. Picture: Martin Shields
BRIGHT SPARK: The sector is performing well, but mainly due to domestic demand. Picture: Martin Shields

That is the key finding of the latest manufacturing outlook survey by employers' group EEF and advisers BDO.

Scottish manufacturers have reported a good start to also predict that it will continue in the third quarter, according to the EEF survey.

In the second quarter a positive balance of 25 per cent of Scottish firms reported increased output and 15 per cent reported improved orders, with 23 per cent increasing employment.

The positive balances expecting progress in the third quarter were 28 per cent for output, 31 per cent for orders, and again 23 per cent for employment.

But export orders fell short of the last quarter's record expectations.

Martin Gill, lead partner and head of BDO in Scotland, commented: "Now that manufacturers have been freed from the shackles of recession they are proving their importance to the Scottish and the UK economy by leading it out of the downturn, outperforming both the service sector and GDP more generally.

"What is now needed is a focus on this success in the UK so that it can be replicated abroad and we would encourage Government, both at Holyrood and in Westminster, to introduce more supportive measures to support exports, ­especially given the tentative nature of economic recovery in Europe."

There were similar findings from the Bank of Scotland PMI survey where a continued rise in new ­business wins in May came ­primarily from stronger domestic demand, with the new export business at manufacturers falling solidly and to the greatest extent for five months.

There was an increase in net job creation for the eighteenth successive month, albeit the slowest in four months and well below the UK-wide average.

Input price inflation eased to the second-lowest in nearly two years.

Donald MacRae, chief economist at Bank of Scotland, said: "The challenge of exporting is shown by the fourth consecutive monthly fall this year in new export orders.

"The recovery in the ­Scottish economy continues but the pace has eased slightly."

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