No relief

There has been no relief from the ‘relentless’ downturn in UK manufacturing with further falls in orders, output and employment, according to the latest CBI Quarterly Industrial Trends survey.

The survey of almost 900 companies covers the first quarter after the war in Iraq but offers little sign of improvement since the end of the conflict. The data shows domestic orders now falling for over three years, export orders falling for nearly seven years and confidence continuing to decline.

Domestic orders fell faster than expected over the last three months. 38% of firms reported a fall, while 14% saw a rise. The balance of minus 24% compares with minus 23% in the April survey and minus 13% in the January survey.

At the same time, export orders fell at their fastest rate for 18 months. 39% of firms recorded a fall in export orders, while 16% saw a rise. The balance of minus 23% compares with minus 21 per cent in the April survey and is the fastest fall since January 2002.

As a result, total orders continued to fall sharply, after declining at the fastest rate for four years in the April survey. Firms do not see the decline in either domestic or export orders coming to an end over the next quarter, but do expect the pace of deterioration to ease slightly.

Output declined broadly in line with expectations over the last quarter and firms expect a further, but noticeably smaller, decline over the next three months.

Ian McCafferty, CBI Chief Economic Adviser, said: ‘Manufacturers have enjoyed little relief in the three months following the end of conflict in Iraq and the downturn in orders appears relentless despite the recent softening of the pound.

‘Manufacturers’ main hope is that a pick-up in the US later this year helps trigger a gradual recovery in the UK. The recent Bank of England move was timely but we may need more cuts in interest rates to support the economy at this challenging time.’

Job shedding continued at a rapid pace over the past three months, but at a slightly slower rate than expected.

Costs were held down better than expected and were flat last quarter. But companies continued to cut prices in an attempt to hold on to their markets, with downward price pressure undiminished.

68% of firms said they are working below capacity, slightly down on the 70% in the previous survey but well above the survey’s historical average of 58%.

Only 16% of firms cite expansion of capacity as a reason to invest, the lowest figure since 1991. Uncertainty about demand remains the key investment constraint, cited by 62% of respondents. With the exception of the post-September 11th survey, this is the highest figure on record.

Manufacturers plan to cut investment in building, plant and machinery at a significant rate over the next 12 months. Projections for spending on innovation and training remain flat.

Note: The survey was carried out between 19 June and 9 July 2003 and 877 manufacturers responded. During the survey period sterling averaged 1.44 Euros (DM2.83) and $1.66 compared with 1.46 Euros (DM2.86) and $1.57 in April’s survey.

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