Falling orders

Most UK regions saw new manufacturing orders fall markedly in recent months, with manufacturers in large parts of the country reporting a further drop in overall confidence.

Most UK regions saw new manufacturing orders fall markedly in recent months, with manufacturers in large parts of the country reporting a further drop in overall confidence – according to the latest Regional Trends Survey published yesterday by the CBI and Experian.

At the UK level, the fall in new orders was the sharpest for two years, and there is widespread evidence among the regions of a difficult environment for the sector characterised by weak orders, rising costs, falling output and further job losses.

The quarterly survey shows that three regions in particular – Northern Ireland, the North West and the West Midlands – have borne the brunt of the weak demand that has emerged in recent months, with the decline in business confidence and export optimism much steeper than the UK average.

The survey shows that these regions were hardest hit by the fall in total orders for the second survey in a row, and this is reflected in a steep fall in output in the past six months.

Engineering, a major manufacturing component in the West Midlands, and textiles and chemicals which are of great significance in the North West, have all fared particularly badly in these three regions in recent months.

Outside these hard-hit regions, output trends have been less gloomy. Declines in the last few months have been quite small and in the case of Wales, the South West and the North East, output actually shows a very slight increase. Scotland reports a reasonable increase for the fourth survey in a row.

On a number of other key indicators, Scotland and Wales appear to have escaped the worst of the problems facing manufacturing. The proportion of firms working below capacity is far lower than in the rest of the UK; employment in Wales has increased perceptibly in each of the past four surveys and the trend in Scotland has been generally positive.

Investment intentions for buildings are positive, in contrast to deep pessimism in other parts of the UK, and in Wales there has been a marked upswing in expectations of spending on plant & machinery.

While employment contraction at the UK level has moderated over the past 18 months, compared with 2002 and 2003, the pace of job losses in manufacturing continues unabated in the South East & London, the East Midlands, East of England and Northern Ireland. These four regions, along with the West Midlands, are much more pessimistic about the employment outlook than the rest of the UK.

An estimated 22,000 jobs are expected to be lost to manufacturing at a national level in the current quarter (April – June), as set out in the CBI’s recent Industrial Trends Survey.

This is a large figure but still well short of the losses seen during the steep manufacturing recession of 2001 to 2003. Experian estimates based on the survey results show that the South East & London is set to bear the largest fall in absolute terms (9,000 job losses) as well as percentage terms (1.4 per cent), followed by the East Midlands (4,000 jobs) and East of England (3,000 jobs).

Peter Gutmann of Experian said: “The fall in business confidence among manufacturing firms highlights a number of adverse features that outweigh continuing strength in the global economy. UK manufacturers are finding it difficult to increase exports in the face of poor eurozone demand and the weak dollar. At the same time import penetration is still eroding their share of the domestic market and slowing retail sales evident in recent months is a further negative factor.”

Doug Godden, CBI Head of Economic Analysis, said: “The gloomy national picture for manufacturing demand – confirmed in official figures released earlier this week – masks some quite significant regional differences, with a more positive picture in Scotland and Wales, whilst Northern Ireland, the North West and the West Midlands are clearly bearing the brunt of the current difficulties.

“It is clear that cost increases remain a pertinent issue for manufacturers nearly everywhere. We hope that the re-elected Government will reinvigorate its efforts to reduce red tape, and demonstrate that there is no agenda to push up business taxes further.”

The results of the CBI/Experian Regional Trends were taken from the 676 replies to the CBI’s Quarterly Industrial Trends Survey received between 23 March and 13 April 2005.