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Manufacturers are `now feeling the economic chill`

28 August, 2008

Despite posting a twelfth consecutive quarter of growth, Britain’s manufacturers are feeling the chill from a slowing economy, according to the latest survey from the manufacturers’ organisation, EEF, and the accountants, Grant Thornton.

Even with output holding up over the last few months, the survey of almost 800 manufacturers, conducted during August, shows that a stagnant UK economy and a sharply deteriorating Euro-zone are now impacting on all parts of manufacturing.

EEF is calling on the government to address the rising risks of further economic weakness by introducing policies that will buttress business from the gathering economic headwinds. This could minimise cuts to jobs and investment and pave the way for an eventual upturn, EEF suggests.

"Manufacturing has shown considerable resilience in the face of a credit crunch, a global economic slowdown and a massive increase in its costs," says the EEF’s chief economist, Steve Radley. "But there are now clear signs that these pressures are starting to take their toll on companies."

Over the past three months, output held up for the twelfth consecutive quarter, eleven of which have been in double-digit territory, highlighting the strength of manufacturing in recent years. However, the balance on orders fell to its lowest level for three years, due largely a fall in domestic orders. However, export orders rose, fuelled by a weaker pound.

Five of the seven sectors surveyed reported weaker activity compared with the previous quarter. Basic metals and electrical equipment saw the sharpest falls, compared to the previous quarter, while electronics and other transport equipment were the only two sectors to show an improvement in trading conditions, with both reporting strong balances.

The North East and the West Midlands both reported negative output balances, while only three regions – North West, South West and Yorkshire and Humberside – reported positive orders balances.

The slowdown is now starting to impact on employment and investment intentions. The balance on investment was negative for the first time in ten quarters, while all regions reported weaker employment balances. Looking forward, the picture is for more job cuts with only London and the South East and Eastern regions planning to raise staffing levels.

Despite output holding up over the past three months, the survey shows falling confidence levels among manufacturers. Expectations for both domestic and export orders have weakened.

"UK manufacturing has looked to its export markets for buoyancy this year, but it seems many of the key markets we export to, particularly in Europe, are now coming down with the same malaise afflicting both the US and the UK," comments Bob Hale, head of manufacturing at Grant Thornton. "However, exporting to emerging markets is still seen as an insulating factor and those UK manufacturers that are able should now be exploring these markets with renewed vigour.

"The majority of manufacturers will now be part of the chorus calling for new Government initiatives to support the sector, as any respite will now be welcome in what is likely to be a winter of economic discontent," Hale adds.


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