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GE High Tech Manufacturing Index shows many companies are operating at or close to capacity but some feel nervous about expanding

GE’s latest six monthly High Tech Manufacturing Index shows UK’s high tech manufacturers are still optimistic about current business conditions and future prospects, although remain cautious about the general economy and business investment.

Although just under a third of firms (29%) surveyed said they were now operating at close to or full capacity, nearly half (46%) of these businesses in this situation said they had yet to put arrangements in place to step up their capabilities. The general economic uncertainty was one reason for this caution.

Overall, compared to the last Index survey conducted in December 2011, sentiment about the current performance of their business remains strong, with the net positive score amongst those polled increasing slightly from +68 to +71 from Dec 2010 to June 2011.

Over three quarters (77%) of the 403 UK high tech manufacturers surveyed said they currently felt either fairly positive (48%) or very positive (29%) about their current business situation.

In contrast they were still downbeat about general economic conditions in the UK. In Q4 2010 31% said they felt ‘fairly positive’ or ‘positive’; about the general economic situation in the UK, in June 2011 this figure is little changed (30%). However they were slightly more optimistic about the next 12 months. 40% of those surveyed said they thought the general economic situation in the UK would get a little or a lot better over the next 12 months. This compared to 38% who responded in the same way in the last quarter of 2010.

GE UK CEO Mark Elborne said; "UK high tech manufacturers are optimistic but it is not surprising they are being cautious about business investment. They see great opportunities in international markets and growth sectors such as green technologies but have to be careful about these decisions because there is still a backdrop of general economic uncertainty."

Capacity businesses slow to expand
One potential concern the survey raised is the appetite for high tech manufacturing businesses at or near capacity to further expand. Nearly half (46%) of the 118 businesses at or close to full capacity said they had no arrangements in place to address the situation. A quarter said they have no plans to address the situation. Some said this was because they felt capacity issues were a short term situation for the business (45% of those not planning to increase capacity), but just as many cited general economic uncertainty (45%) with the problem of finding or attracting the right skilled staff being mentioned by 38%. Only 8% of businesses questioned said they were not busy.

Global political unrest is one uncertainty
The survey also provided evidence of a tough first half to 2011. Businesses benefited from low UK interest rates (mentioned as a positive factor by 36%) and strong growth in emerging economies ( mentioned by 42%), but more factors had a negative influence. Continued high raw material costs were regarded as having had the most negative influence since December 2010 (mentioned by 85% of those surveyed), followed by the UK double bank holiday (mentioned by 51%), the severe winter weather (49%), the increase in VAT rate ( 34%), the weak performance of the rest of the UK economy (28%). Global political unrest since the beginning of 2011 in the Middle East and North Africa was also cited by 32% as having a negative impact on trading performance.

Overall slightly fewer businesses said that they had seen their own situation improve over the past six months (56%), than over the past year (60%), suggesting there was a slight erosion in levels of confidence in recent months, although manufacturers seem more optimistic about the current situation and the future.

Confident about next 12 months
The high tech manufacturers are buoyant about the next 12 months, with 74% saying they expected the performance of their business to be a little (56%) or a lot better (18%) over the next year with the net positive score moving from +66 six months ago to +69 in June 2011. Meanwhile 48% of those surveyed said they expected to take on more staff over the next 12 months, the same proportion as answered this question positively six months ago.

Growth coming from international markets
The manufacturers surveyed saw international markets providing the best growth potential, with 67% of those selling to international markets feeling that customers outside the UK would be buying more products and services over the next 12 months. However over half of high tech manufacturers questioned also expected to see domestic orders increase over the next 12 months, a greater number than in Q2/2010 (50% expected an increased in Q2/10 compared to 54% in the current survey).

When asked "what are the main factors behind this optimism?" – the predominant answer was an increase in exports and the strength of new and emerging markets. The weak pound was also highlighted as a factor, but was seen as less
important than fast growing overseas markets.

More credit seen as available
The Index suggests perceptions of credit availability are easing among high tech manufacturers. Compared to the first Index in January 2011 the proportion of manufacturers saying credit terms were fairly or unacceptably strict has dropped from 54% to 48%. However of those manufacturers who had tried to raise funds from banks, one in five (22%) applications had been turned down.

The high tech businesses also expressed increasing confidence in the UK high tech manufacturing sector in general, as well as their own business. When asked how they felt about current conditions in the high tech manufacturing sector in general 42% said they were very positive or fairly positive, compared to 36% in the Wave 1 survey, with the net positive rating going up from +9 to +23.

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