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Manufacturing recovery appears to falter

01 October, 2004

Manufacturing recovery appears to falter

The improvement in the British manufacturing sector reported earlier this year, appears to be faltering. Between July and August, output from British factories fell by 0.8% - the biggest drop in almost two years - according to figures issued by the National Statistics Office. Output has been dropping for three months now - its longest sequence of declines since January 2002.

The decline ahs been led by significant falls in the transport equipment sector (down by 3.8%), electrical and optical equipment (a 2.7% drop) and machinery and equipment (a 3.3% fall). The only significant increase (4.3%) was recorded in the chemicals and man-made fibres sector, but in the three months to August, even this sector exhibited a 1.9% decline, compared to the previous quarter.

Overall, in the three months to August, manufacturing output was 0.4% lower than the three months to May, with nine of the 13 sectors in the survey reporting decreases in output. The one significant increase during this period occurred in the electrical and optical equipment sector, where output grew by 2%.

Despite the recent declines, manufacturing output in the three months to August was 1% higher than during the same period a year ago.

"On their own, monthly figures are very volatile, but the pattern now coming from a host of data and surveys is clear," says Doug Godden, the CBI`s head of economic analysis. "Underlying conditions facing manufacturing have taken a turn for the worse since the early part of the summer. A combination of oil price rises and increases in interest rates have affected demand at home and abroad.

"These figures will add more weight to the argument, if any more were needed, for keeping interest rates on hold for the time being," he adds.

• In its latest survey, published in early September, the manufacturers` association, EEF, paints a rosier picture. It says that manufacturing remains in good health with manufacturers reporting their best order intake for nine years, during the third quarter. But, it adds, the recovery in profits is being limited by a variety of increasing cost pressures (such as oil, energy and raw materials), which are continuing to depress margins.

The EEF predicts that manufacturing will grow by 1.5% this year and by 2.6% in 2005, with engineering expanding by 2.9% and 4.2% respectively. Manufacturers are also said to be more optimistic than they were during the previous quarter.

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