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EEF survey reveals manufacturing `soft patch`

01 March, 2005

EEF survey reveals manufacturing `soft patch`

The latest survey of UK manufacturers published by EEF, the manufacturers` organisation, and RSM Robson Rhodes, shows that output and orders fell over the past three months, with growth at its slowest pace since the fourth quarter of 2003. This was in line with the previous survey which showed a marked drop in confidence. Export orders outpaced domestic orders, continuing the trend of the past two years.

While manufacturing continues to see some growth, rising costs and competitive pressures are hindering attempts to rebuild margins. As a result, investment intentions remain subdued and have weakened a little in the past quarter.

Companies remain unable to raise prices. Together with increasing costs and competitive pressures, this is keeping margins tight with companies` cashflow balance falling to its lowest level for two years.

Lower output and orders volumes across some sectors also contributed to a slowdown in hiring. Companies are not anticipating any increase in jobs over the next three months and losses are expected to be felt again in the motor vehicle sector, which has borne the brunt of earlier cutbacks.

Despite the worsening cashflow situation, and no sign of a rebound in investment, the manufacturers quizzed for the survey were more optimistic about next quarter, suggesting that the past three months may have been a temporary soft patch rather than the beginning of a prolonged slowdown. A balance of +18% of companies surveyed expect to increase their output over the next quarter and +20% believe orders will rebound, indicating that growth in manufacturing should continue at least over the first half of this year.

EEF is now forecasting that UK manufacturing will grow by 1.2% this year and engineering by 2.6%.

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