CBI survey highlights current difficulties

A survey published today by the CBI suggests that the number of manufacturers operating below capacity has risen to a 20 year high. This has been fuelled by a two-year decline in orders and output.

The CBI’s Quarterly Industrial Trends survey, which was carried out between 12 December 2002 and 8 January 2003, also shows manufacturers’ confidence dropping further as weak global demand threatens to keep the sector anchored in recession.

Seventy-four per cent of firms are now said to be working below capacity, the highest percentage recorded since January 1983. This follows two consecutive surveys where 67 per cent of companies operated under capacity.

The survey says 31 per cent of firms saw a fall in total orders in the four months to January, while 22 per cent saw a rise. The balance of minus nine per cent follows the minus 16 per cent recorded in the October survey, and marks the eighth consecutive quarter of declining demand.

Output also fell and firms no longer expect any noticeable rise in either orders or output over the next four months. This follows three consecutive quarters in which expectations for rising demand and production were disappointed.

The survey reports that conditions in overseas markets have continued to deteriorate. Export orders fell at the fastest rate for a year while the decline in export prices accelerated to the fastest rate since July 2000. As a result, export optimism for the year ahead fell for the second consecutive quarter.

Employment fell further than expected, with no sign of respite over the next four months. The CBI predicts 42,000 manufacturing job losses in the first quarter of 2003.

The CBI has chosen not to call for an immediate cut in interest rates because of the uncertain effects of housing market developments and the government’s tax-and-spending policy on inflation. But the employers organisation urged the Bank of England to remain vigilant and act swiftly if the economy deteriorates further.

Ian McCafferty, CBI Chief Economist, said: ‘Large sections of UK factories are standing idle. Figures show the number of manufacturers working below capacity has risen to a 20-year high, causing firms to plan further cuts in investment and jobs. With little let-up in the two-year decline in orders and output, the overall picture will concern manufacturers.

‘External demand shows no sign of a pick-up and the German economy is worsening. Rising oil prices have been exacerbated by problems in Venezuela and uncertainties in the Middle East. April’s rise in National Insurance contributions will be a blow to firms that are already under the cosh. This promises to be another challenging year for manufacturers.’

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