According to a new Engineering and Machinery Alliance (EAMA) survey of over 100 SME manufacturers, investment in UK mechanical engineering is now on the rise.

After eight years of decline, during which the sector’s spend halved, 83% of firms in the EAMA survey said that they were investing as much or more than in 2005. Furthermore, 66% of them were confident about business going into 2007, and fully 78% said that they expect to maintain or raise their investment levels again this year.

The most popular areas for investment are training (84%), plant and machinery (82%) and IT (77%) followed by vehicles (68%), R&D (56%) and lastly buildings (43%). Based on the survey, firms are clearly spending more on IT in particular, but also on R&D, albeit from a lower base.

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Graham Hayes, EAMA’s chairman commented: “Nine in ten of the companies investing in R&D are SMEs and four in ten of them said they were increasing their spend. However, companies are still not taking full advantage of the opportunities offered by the fiscal regime as only two in ten firms said they were using the R&D tax credit.”

Overall, the main reasons for investing are to improve productivity (53%), new technology (50%) and product development (36%). Among the top 20 exporting businesses in the survey (68% of them SMEs), all selling more than 60% of their goods overseas, the order was reversed with product development first followed by new technology and productivity last.

To achieve these goals, the majority of firms including nearly all the big businesses were investing at up to 9% of turnover. However, in their efforts to raise productivity, nearly a quarter (24%) of micro and small businesses said they were investing at rates in excess of 20% of sales.

Over 60% of companies agreed that there’s increasing overseas interest in their products.

Graham Hayes stated: “In 2006, UK mechanical engineering firms recorded a positive trade balance of over £5 billion. The sector seems to be investing to maintain this excellent record. But competitive upgrading, so central to success can place a heavy financial burden on an SME’s balance sheet as the reported levels of investment clearly demonstrate.”

(CL)