UK manufacturers have had their confidence hit by falling profits and difficult export markets, according to a series of recent surveys.
The Confederation of British Industry’s quarterly Industrial Trends survey, released on Wednesday, found optimism falling at its fastest rate for 18 months. Twenty-one per cent of manufacturers were less optimistic than in the previous survey, compared to 11% who were more optimistic, giving a negative balance of 10%.
There is a risk is that falling confidence could herald a downturn, according to Nick Reilly, chairman of Vauxhall Motors and head of the CBI’s economic affairs committee.
`UK companies have had no real respite from the strength of sterling against the euro which has made it much more difficult to compete,’ he said.
Investment in new plant and machinery is one casualty of falling optimism the report says. It found a negative difference of 30% between manufacturers intending to reduce and those intending to increase investment over the next 12 months. `If firms continue to rein in their spending plans, the future for manufacturing industry in the UK is rather bleak,’ Reilly said.
Further evidence that manufacturers’ profits have taken a battering came from the Office for National Statistics, which found net returns in the sector had fallen to 7.1% in 1999 from 10.8% the previous year. The drop contrasted with` almost constant profits in the service sector, with a net return of 15.3% in 1999 and 15.4% in 1998.
Manufacturing sector profits have continued to fall this year, reaching 6.9% – barely above the 6% base rate of interest – during the first quarter of 2000.
According to the British Chambers of Commerce some of the smaller UK manufacturing companies are now seriously contemplating stopping production and simply buying-in goods produced overseas.
BCC director-general Chris Humphries said: `There is a weight of evidence that if you are in a business such as garden furniture or textiles this will prove to be a watershed year. These sorts of businesses cannot maintain their manufacturing prices at a comparable price with the market.’
Problems at larger manufacturers which are being hit by the weakness of sterling against the euro are being passed down the supply chain to smaller manufacturers and service companies, Humphries said. He estimates that for every one manufacturing job there are up to four service sector jobs dependent on it.
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