An overview of the global economy shows that it is the US which is really driving growth at the moment. Although their GDP growth hasn’t been exactly remarkable up to 2014, the US still looks likely to develop strongly in 2015 and to to lead the world economy.

The euro-zone economy continued to contract in 2013, largely due to Spain and Italy, and although it returned to growth in 2014, it remains weak and the likelihood is that it will only expand modestly over the next couple of years. Within the euro-zone, Germany has benefitted from structural reforms but, in general, fiscal policy seems to have been too tight and has held back growth in the region. Spain and Ireland are starting to turn around, but France, Italy, Belgium and Netherlands are not improving and are arresting a general recovery.

In the UK, recent revisions to data as a result of introducing a new methodology and some definitional changes have improved the view of history; it turns out the double-dip recession never happened and the great recession was about one year shorter than first estimated. That said, it still remains the deepest and longest recession since quarterly records began in 1948. 

The revisions have also affected data on investment (here it is the new definitions of what constitutes investment that has made the greatest difference) which also means that there is less scope for growth in investment to catch-up with the economy as a whole. But there are still plenty of reasons to be optimistic about the UK economy, the key industry sectors and investment spending over the next couple of years.

There are also some positive indicators for the manufacturing sector. Although the PMI surveys have fallen back from the very high levels that we saw in the second half of 2013 and into last year, they have remained positive. This continues to point to modest growth in activity in the manufacturing sector going forward.

Other positive pointers come from data on series such as profitability expectations and investment intentions; for the former series, data from the British Chambers of Commerce survey show this at record levels and their investment intentions series is close to its all-time peak – the CBI also has a series on investment intentions which, although not quite at record levels, is certainly well into positive territory.

There are, of course, some risks to these forecasts and, as we have seen in recent years, these are mostly towards the downside. There is a chance that US growth and activity could be even stronger than anticipated, which would have a positive impact on our numbers, but the UK remains exposed to problems in Ukraine and the consequent sanctions with Russia. This had a limited direct effect on us, but perhaps more important is the impact felt through the rest of Europe which remains the UK’s major trading partner for engineering goods. This indirect threat comes in two ways; there are links into European supply chains which are slowed down because of the impact of the sanctions with Russia and there is also the general effect on confidence and the European economy.

Recently, we’ve seen a big change in oil prices which, while lowering inflation – perhaps slightly artificially – has also had an impact on activity levels in the North Sea; very little of the activity there is profitable with oil at less than US$60 per barrel, and, as this is continuing to fall, it is likely that this will have a negative impact on industrial activity.

As a result of all these factors, combined with our own research and analysis we expect UK machine tool demand to continue to increase during 2015. While we expect this to be significant, we do however expect it to be slower growth than in 2014, as the industry is generally operating at a high level, leaving little scope for stronger growth.