UK manufacturing shows recovery glimmer but firms still running against a 'storm of global uncertainty', industry body warns 

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Britain's hard-pressed manufacturing sector is showing gradual signs of recovery, an industry report suggested today, although it is still running against a 'storm of global uncertainty'.

Since January, the pace of contraction in the sector has slowed, with orders stabilising and growth predicted for the coming months, according to the EEF's latest Manufacturing Outlook report.

But, despite recent improvements, the industry body still warned that risks in the sector remain high. 

Regional variations: Regional manufacturing data comparing Q4 2015 with Q1 2016, according to EEF

The EEF's poll of 369 companies found that manufacturing output continued to fall over the last quarter but has improved after hitting its weakest point in six years at the end of 2015.

As order books improve, surveyed manufacturers said they predicted a growth in output over the next three months. 

But the EEF still cut its forecast for manufacturing growth in 2016 to 0.6 per cent from a previous forecast of 0.8 per cent. It said Britain's overall economic growth would be 1.9 per cent this year, down from a previous forecast of 2.1 per cent. 

The industry group said the approaching referendum on Britain's membership of the European Union, set for June 23, could add to caution among factory managers. 

Lee Hopley, chief economist at the EEF, said: 'After the gloomy end to 2015, this latest data shows a chink of light but we should not be getting the deckchairs out yet.

'The slide is bottoming out but manufacturing is still in negative territory and faces a precarious climb back up amidst a storm of real uncertainty.

'What these findings make clear is that manufacturers face challenge enough - they certainly don't need more pressure from domestically generated uncertainty or costs.

Output: EEF's poll of 369 companies found that manufacturing output continued to fall over the last quarter but has improved after hitting its weakest point in six years at the end of 2015

He added: 'Already almost four in 10 identify rising business costs as a key risk this year, while the proportion of companies viewing the UK as a competitive place to do business has fallen from 70 per cent in 2015 to 56 per cent this year.

'We're urging the Chancellor to take this message on board and signal support for the sector by avoiding creeping cost and policy changes at the next Budget.'

George Osborne will deliver his latest assessment on the UK economy and fiscal measures to be taken in the coming year on Wednesday week, March 16.

The EEF's findings are more positive than other recent surveys. Separate findings today from a report by accountants BDO warned that Britain's manufacturing productivity is slowing, with export orders expected to decline further in the next six months. 

And, last week, the Markit/CIPS UK Manufacturing Purchasing Managers' Index claimed UK manufacturing has fallen 'towards stagnation.'

With exports and order books struggling, Markit's survey posted a balance of 50.8 for February, down from 52.9 in January. That marked the weakest growth seen in the manufacturing sector since April 2013, Markit said. 

Slowing: Last week, the Markit UK Manufacturing PPI claimed manufacturing has fallen 'towards stagnation'

Other data last week from Markit, saw its UK construction sector PMI weaken to 54.2 from 55.0 in February, despite analysts' predictions for a rise to 55.5.

Residential housebuilding rates fell to their lowest level since June 2013 and employment in the construction sector as a whole dwindled to its lowest since August last year in February, Markit said.

This Thursday, the Bank of England's Monetary Policy Committee will conclude its latest monetary policy committee meeting, with UK interest rates expecetd to be kept on hold at record lows of 0.5 per cent. 

The Bank has, however, said it is prepared to cut interest rates or expand its bond-buying programme if needed to offset any knock to Britain's economic growth. 

Confidence: Confidence in the UK's manufacturing sector is fragile, according to the EEF