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UK manufacturers predict a return to growth
Published:  21 October, 2009

The decline in UK manufacturing output has eased in the past three months and the sector`s prospects look brighter, with modest growth expected in the coming three months, according to the latest Quarterly Industrial Trends Survey from the Confederation of British Industry (CBI).

The survey of 463 manufacturing firms conducted in the two weeks to 7 October, also revealed that the weakness of sterling is helping export competitiveness, although stocks are still being run down and access to finance is constraining output and investment.

The volume of manufacturing output continued to fall in the three months to October, but at a much slower rate than in the previous three months. Domestic demand also continued to slow, but marginal growth is expected in the three months ahead. Helped by a weakened sterling, the contraction in demand for exports was less than anticipated and firms expect export orders to grow over the coming three months. Sentiment about export prospects for the coming year is the strongest since July 1995.

“Having endured a brutal recession, manufacturers appear to be turning the corner, with optimism up and mild growth in output and demand expected over the next three months,” says the CBI’s chief economic adviser, Ian McCafferty (above). “Firms finally seem to be benefiting from a weakened pound, as global markets recover, helping to lift demand for UK exports.

“However,” he cautions, “the recovery from the downturn will be protracted and weak – investment will remain constrained and unemployment will continue rising. The tight flow of credit to many manufacturers remains a worry, and firms which are unable to get funding to meet orders could see their hopes of recovery stall.”

The surveyed firms are planning to spend more on innovation in the coming 12 months, while expenditure on staff training, and on plant and machinery, will be almost unchanged from the levels of the past year. More than 75% of firms report that they have spare capacity, and that this is likely to constrain future investment levels.

Manufacturers are increasingly worried about the cost and availability of finance. Some 14% of those surveyed said an inability to raise external finance was limiting capital investment – a 6% increase on three previous three months.

Firms have continued to destock, and stock levels of finished goods fell at a record rate for the second successive survey. Further, but more modest, stock declines are forecast for the coming three months.

Employment in the manufacturing sector fell quite heavily during the three-month period, but the balance of 34% firms reporting a drop in staff numbers was an improvement on July (-42%) and is forecast to ease further in the coming three months (-23%).

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