2001 was a disaster, but this year will be worse

As industry finally turns its back on a disastrous 2001, experts predict that this year may be even tougher for UK manufacturers.

A report by Cambridge Econometrics, published this week, predicts manufacturing growth will decline 2.8 per cent this year, compared to a fall of 1.5 per cent to 2 per cent in 2001.

Rachel Beaven, manager of UK industrial service at Cambridge Econometrics, said global demand will remain weak, which will hit export orders. Manufacturers are also unlikely to increase investment, she said. ‘Investment levels are expected to fall, caused by the continued slowdown in manufacturing activity.’

The report predicts manufacturing output will continue to shrink in 2002, dragged down by the struggling computer, semiconductor and telecoms industries. Output in these sectors will fall by 9.5 per cent in 2002.

But manufacturers should benefit from an improvement in the world economy in 2003, said Beaven. ‘We expect investment levels to recover next year. There should be a rebound in confidence towards the end of 2002.’

Manufacturing productivity growth slowed sharply during 2001, according to figures from the Office for National Statistics. Productivity growth in the third quarter of the year was 1 per cent on the same period in 2000, down from 2.5 per cent in the previous quarter.

Despite the DTI’s repeated claims that it wants to make the UK a good place to do business, to promote greater efficiency and heighten competitiveness, it has yet to tackle manufacturing’s productivity gap with the US and other European countries, said Labour MP Martin O’Neill, chairman of the Commons Trade and Industry Committee. ‘The government has been in office four years, and we have had a climate in which business can survive, but no sign of a rise in productivity,’ he said.The committee has launched an inquiry into the causes of this productivity gap, and the effects of September 11 on industry’s competitiveness.

The terrorist attacks are likely to have twice the impact on UK economic growth than the foot and mouth outbreak, Oxford Economic Forecasting has predicted in a report for the Machine Tool Technologies Association. The impact is being felt mainly in areas of manufacturing that depend upon investment, such as machine tools, as confidence has been hit by the terrorist attacks, the report shows.

The government must show greater leadership in encouraging UK manufacturers to invest, said O’Neill. Companies have been offered tax incentives for both training and research and development, but not for investment, he said. ‘The conventional Treasury line is that if you give investment incentives it will only be the people who are going to invest anyway who will take them up, and as a result they will not have an impact on other businesses. That line has got to be challenged.’

The government recently agreed to offer airlines a £40m aid package, to compensate for their losses during the closure of US airspace for four days after September 11. Keith Hayward, head of economic and political affairs at the Society of British Aerospace Companies, said any little help to improve the confidence of airlines was welcome, but he questioned whether £40m was enough, when compared to the $15bn package offered to airlines by the US administration. ‘It is a shade of the aid that was offered to the US industry,’ he said.

The government must improve incentives for manufacturers to invest if it is to safeguard the future of the industry, as the UK’s aerospace sector is competing as much with foreign governments as with rival companies, he said. ‘We must make investments, but there comes a point when companies will say enough is enough, and move abroad to take advantage of more attractive climates for investment in other countries.’

Airbus has announced it is to cut 500 jobs in the UK as a result of falling demand for its regional jets, and will introduce a series of cost-cutting measures, including the introduction of a 35-hour working week, a pay freeze, changes to shift patterns, and an end to overtime. The company recently slashed its forecast delivery target for 2002 from 375 to 300 aircraft.

GKN has said it is cutting 650 jobs at its aerospace components plant in Cowes, which the company said had been hit hard by Airbus’s forecast cut in delivery levels, and BAE System’s plans to scrap its regional jet programme.