Export optimism

According to a survey released this week, prospects for Britain’s manufacturers have improved for the first time since July 2004 with several regions showing a particularly marked improvement.

Manufacturers’ optimism about future export prospects has improved for the first time since July 2004 with several regions showing a particularly marked improvement, according to the latest CBI/Experian Regional Trends Survey.

The strong economic picture globally and, in particular, signs of recovery across the Eurozone market, has helped boost UK demand in recent months. A small improvement in domestic conditions also supported national business confidence in the past quarter, which stabilised following 18 months of deterioration.

In four UK regions, the upturn in export sentiment was particularly marked, with the East Midlands seeing the strongest improvement since mid-2003. Scotland, the East of England and the South East & London also experienced a surge in optimism. The West Midlands saw an encouraging, if modest, rise in export confidence, boosted by a rebound in total orders – the strongest for two years – with chemicals and man-made fibres and metal manufacturing doing particularly well.

In Scotland, optimism about export prospects was underpinned by a marked rise in total orders, the sharpest since the survey began in 1988. The upturn in order books was broadly based, with food, drink & tobacco and engineering doing particularly well. Output rose quite strongly, employment turned up and the number of firms working below full capacity fell markedly. The outlook for the next three months is similarly up-beat, with a large number of respondents expecting further output gain.

The UK as a whole posted a marginal increase in total orders, reversing more than a year of steady decline. Export orders, by contrast, fell slightly at the national level. But this masked a wide variation in performance across the regions. There were strong upturns in Scotland and Northern Ireland, where the rise brought to an end two years of falling orders. This was further reinforced by the West Midlands, which posted its sharpest gain for more than a decade, with steady increases in the South West, the East of England and the North East.

Output at the UK level stabilised in the past three months, in line with expectations, following a year of contraction. The South East & London extended its run of falling output, but the decline was much smaller than in the past year. Among the regions experiencing a rise, the North East recorded the strongest gain, its sharpest since mid-2004, boosted by a marked upturn in output from engineering and food, drink & tobacco. Scotland, the West Midlands and East of England also posted increases in output. Expectations for the next three months suggest that output at the national level will show an encouraging rise, with particularly strong expansion expected in the East Midlands, boosted by a sharp increase in food, drink & tobacco, chemicals & man-made fibres and engineering.

Manufacturing continued to shed jobs, with sharp declines in employment experienced across virtually all the regions. In the South East & London, the East Midlands, Wales, the South West, East of England and the North East, the job losses were the most severe for a year. The only exception was Scotland, where employment rose for the fourth consecutive survey. Job prospects in the coming months are similarly downbeat. The sharpest contraction is expected in the South East & London, followed by Wales and the South West. But there is some encouragement – the East Midlands and Scotland both expect a modest rise in employment, while conditions in the North East are set to stabilise for the first time in a year.

According to Experian estimates based on the survey results, a further 28,000 manufacturing jobs will be shed in the second quarter of this year. The job cuts expected in the current quarter continue the long-term downward trend in manufacturing employment. The most significant job cuts in absolute terms are expected in the South East & London (9,000), which also shows the largest percentage fall at 1.7 per cent. Elsewhere, Yorkshire & the Humber, East Midlands, East of England, the South West and the West Midlands are expected to shed a further 3,000 jobs each in the second quarter.

Dimitri Gunawardena, Economist at Experian, commented: ‘The more optimistic survey results broadly reflect the improvement in the official data, where manufacturing exports have benefited from stronger external demand, particularly from the vital Eurozone market.

‘However, the upturn is far from conclusive, with sustained import penetration from low-cost countries still a major challenge for UK manufacturers. While the modest improvement in export optimism is encouraging, the survey recognises the prevailing downside risks to growth, notably from a reversal of the recent upsurge in Eurozone demand and mounting cost pressures as a result of higher energy prices.’