No rebound for manufacturing sector
CONDITIONS in the UK’s manufacturing sector have continued to improve in the final quarter but signs for a strong rebound in 2010 remain elusive.
That’s the finding of a joint study by manufacturers’ organisation EEF and business advisers BDO.
The fourth quarter survey confirms that the worst of the downturn is behind the sector and the weak pound and recovering world markets are beginning to have a positive impact.
But confidence across manufacturing remains fragile, as companies anticipate other obstacles on the road out of recession such as increased exchange rate volatility and potential supply chain risks.
EEF also warned that given the experience of previous recessions when investment took some three to four years to recover the steep cutbacks seen during the current downturn present a significant threat to industry’s longer term competitiveness.
The manufacturer’s organisation is urging the Chancellor provide stability and certainty in the business environment in his pre-budget statement.
It is recommending that he leaves supportive measures in place such as the 40% first year capital allowances for an additional 12 months until April 2011.
This also means forgoing measures that would raise taxes during a recovery that will stretch companies’ working capital.
Commenting, EEF chief economist, Lee Hopley, said: “While conditions are continuing to improve on the back of recovering world markets and a weaker currency, there is little to suggest that we are in for anything other than a long, slow haul out of recovery.
“Manufacturers have been grappling with extremely difficult trading conditions for more than a year now, but we’re not out of the woods yet and a great deal of economic uncertainty remains.”
He added: “Cutbacks in investment remain of particular concern. Whilst the need to address the public finances in the long term is urgent, this must be balanced with the need to continue with supportive measures underpinning a productive sector of the economy.”
The report also found that the number of companies seeing output and orders decline has moved from firmly negative to almost in balance with those recording an increase.
Responses on both indicators were the best since quarter three 2008. New orders have also improved, especially overseas where the balance on export orders has improved from -44% to -5% in the past six months.
In line with the improvement in output balances nationally, most UK regions have seen output improve from the lows reported over the past six months.
However, the continued weakness in metals has kept some of the balances in the Northern regions below the UK average.
Following the historic lows of the second quarter, the third quarter saw fewer firms across all sectors reporting declining output across the board. With the exception of basic metals this trend continued in the past three mont
Whilst the improvement in conditions hasn’t yet put a floor under job losses in manufacturing the pace of cuts has at least slowed with the balance of companies reducing headcount in the past three months was unchanged from the previous quarter.
EEF is forecasting manufacturing output to have contracted by 10.4% in 2009 but to grow by only 0.9% in 2010. Engineering output is forecast to decline by 16.0% this year and zero growth next year.
