Manufacturing output up

Manufacturing output in the UK picked up in the last three months, ending 18 months of weakness but the upturn is fragile and not uniform across the UK.


Manufacturing output in the UK picked up in the last three months, ending 18 months of weakness. But the upturn is fragile and not uniform across the UK, according to the latest CBI / Experian Regional Trends Survey published this week.



Most regions saw a rise in output over the past three months, signalling a tentative improvement after the downturn that has beset the sector for the past two years. In the North West and Scotland output growth was strong and several other regions saw moderate expansion. But Yorkshire & the Humber experienced stagnation and in two regions, the East Midlands and Northern Ireland, production continued to decline.



The improvement in output in the past three months followed a mild pick-up in new orders earlier in the year. This was boosted by growth in export orders in the past quarter. But new orders at the UK level were unchanged over the past three months, highlighting the fragility of the recent recovery in output, which was also less than had been expected. This was partly due to the sharp decline in new orders in the South West, which stands in contrast to the improvement seen in many regions, notably Wales, Scotland and the North West.



That upturn in new orders appears to have boosted sentiment in Wales and Scotland. Along with the South East & London, they are the most positive parts of the UK regarding the overall business situation. The East Midlands is the most optimistic regarding export prospects, followed by Scotland and Wales.
At a UK level, firms expect modest growth in domestic orders over the coming three months, and are the most positive about the next quarter’s export orders in over two years.



Reflecting better times in Scotland and the North West, both report a significant fall in the proportion of firms operating below capacity. This has contributed to a sharp reduction at the UK level in the proportion of firms working below capacity, which is at its lowest level since 1998.



Rising costs, largely due to increased energy prices, continued to keep margins under pressure, however. Costs rose markedly in all regions, with the exception of the South East & London, where rises were modest, and Northern Ireland, which reported a decline. The sustained rise in unit costs anticipated by the majority of regions over the next three months is expected to keep profit margins under pressure. However, the expected upturn in domestic and export prices across some regions – notably Yorkshire & the Humber, the South West, Wales and Scotland – will help to reduce this impact.



UK manufacturing continued to shed jobs in the past three months, but the pace of job losses was less steep than in the previous quarter, reflecting the modest upturn in output. Northern Ireland reported the sharpest fall of all the UK regions, followed by the South East & London. After two surveys indicating little change in employment levels, the North West reported a modest upturn in the past three months.



According to Experian estimates based on the survey results, a further 23,000 manufacturing job losses are expected nationally in the current quarter. Several regions (the North East, the North West, Northern Ireland, Wales and Scotland) are expected to experience stable job numbers or only small losses. However, substantial job losses are still predicted in the South East & London (7,000 job losses) and the East and West Midlands (3,000 each).



Dimitri Gunawardena, Economist at Experian, said: ‘There is welcome evidence in the survey results that the UK manufacturing sector is at last benefiting from a buoyant global backdrop. But domestic orders remain stubbornly flat and this, together with import penetration, is constraining the strength and sustainability of the recovery.’



Doug Godden, CBI Head of Economic Analysis, added: ‘Strong export demand driven by a healthy global economy has helped lift manufacturing output over the past three months, but the sector remains fragile and some regions have fared better than others.



‘Disappointing orders are a cause for concern, especially in the South West, although firms nationally remain upbeat about demand next quarter. Companies also face continued pressure on profits from rising energy prices and unit costs.’