Member Article

Toughest manufacturing conditions reported for three years

Manufacturers nationwide have faced the toughest conditions the sector has seen in three years, according to a report from EEF, the manufacturers’ organisation and BDO.

Most indicators have weakened in the last quarter, and figures for output and orders balance are the weakest they have been since the recession officially ended.

The sector suffered a more significantly weakened market that BDO and EFF predicted in June, and manufacturers were hit by a fall in demand in the UK as well as overseas, and home orders became negative for the first time in two and a half years.

The balance of responses on investment intentions has decreased by 5% from the previous quarter, although the figures remain positive.

EEF’s Chief Economist, Lee Hopley, said: “Pockets of growth still remain in some sectors, but overall confidence appears to be draining away.

“The sharp drop in export balances over the past quarter is a particular concern given their importance to UK manufacturers and also our economy’s reliance on exports as a source of growth.”

She continued: “Some positive news can be taken from the improvement in the short term outlook and the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term.”

19% of firms reported deteriorating conditions in export margins, and 24% felt pressure on UK sales margins.

Eastern regions of the UK enjoyed a substantial increase of 35% in output, whereas Yorkshire, the West Midlands, South East and the North West all experienced lower output and order balances than expected.

Tom Lawton, partner at BDO in the East of England, said: “The results of the survey paint a relatively positive picture for manufacturers in the region but with weakening markets across the board and pressures on margins, the next three months could prove difficult.

“Larger companies in the region that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent. All of this in the face of worsening market conditions.

“This indicates that manufacturers have learnt the mistakes of the past, are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”

Output expectations for Eastern regions are not so good, as a balance of -12% and 11% of manufacturers predict growth, whereas in the South East this figure stands at a balance of 32% and 22%.

Across the country, the shrinking output figures have caused EEF to downsize its forecasts, as a contraction of 1.5% is now expected for the rest of the year, and a modest 1.5% growth predicted for 2013.

Despite this, manufacturers in the South East have positive output expectations for the next quarter.

Jim Davison, London & South East Director of EEF, the manufacturers’ organisation said: “It’s encouraging to see that companies are not planning for a further deterioration in conditions as we head into the final months of the year. But, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”

Recruitment in the sector is strongest in the East with 33% planning to employ staff. 17% of Yorkshire manufacturers are taking on workers and 23% of North West firms, whereas only 4% of South East companies are looking to recruit.

Tom Lawton continued: “The results of the survey paint a dark picture with weakening markets across the board.

“Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter.

“With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.”

This was posted in Bdaily's Members' News section by Miranda Dobson .