North beats south

According to the CBI’s latest quarterly Regional Trends Survey, manufacturing output across the UK stagnated over the past three months, after an encouraging upturn during the previous quarter.


Manufacturing output across the UK as a whole stagnated over the past three months, after an encouraging but patchy upturn during the previous quarter. But some significant regional differences have emerged, with northern regions outperforming the south in both output and employment, according to the latest quarterly Regional Trends Survey published yesterday by the CBI and Experian.



The survey shows that, across three northern English regions and in Scotland, output increased in the last three months. Across these regions, the most marked growth was in the North West and Yorkshire & the Humber with more modest increases in the North East and Scotland. By contrast, output in the East of England, the South East & London and the South West stagnated, whilst it declined in the West Midlands and Northern Ireland.

Differences between the north and the south were even more telling for orders. At a national level, the volume of new orders fell, contrary to expectations based on better prospects in the Eurozone and hopes for more sustained growth in domestic demand. The South West bore the biggest brunt of the decline but volumes of orders also fell in Northern Ireland and the West Midlands. In the northern English regions, and in Wales and Scotland, orders increased.

Looking forward, expectations for export orders are most positive in the north, especially the North East, compared to predictions of little change or marked decline in the south, most notably the South West.

These trends translate into deteriorating business sentiment for many regions. The sharpest decline in optimism was seen in the South West, followed by Scotland and the West Midlands. After Wales, the strongest upturns in confidence were in the North East and Yorkshire & the Humber.

In all regions, apart from the East Midlands, the number of firms working below capacity rose, with Scotland seeing the biggest increase.

Rising costs, associated with higher energy prices, continued to add to pressure on firms’ profit margins, as they have done for the past two years. Costs rose most steeply in Northern Ireland, the North West and East Midlands, and there were significant increases in several other regions. The only exception was the South East and London, where costs fell slightly following six months of modest increases. Manufacturers expect to increase their domestic prices modestly at a national level over the next three months, though overall they expect no change to export prices. Those regions that do expect to raise prices should help mitigate some of the rising costs.

The divergence between the north and south is also seen in employment. With the number of manufacturing jobs in long-term decline, it is unusual for regions to see expansion in employment. However, an increase in jobs was seen in both the North West and Yorkshire & the Humber in the last three months. Meanwhile, the downward trend continued in the East of England and with greatest severity in Wales and the South East & London.

The overall decline is set to continue. According to estimates based on the survey results, the biggest fall in jobs in absolute terms in the next three months is expected in the South East & London (9,000), which also has the largest percentage decline of 1.6%.

The survey shows that in the past three months, output from capital goods industries has expanded, whereas production in the rest of manufacturing has slipped from the upturn seen earlier in the year. More specifically, areas of strength in the north, such as machinery, industrial plant, machine tools and shipbuilding, have shown sufficient strength to outweigh a continued decline in textiles. Performance in the south has been dragged down by exposure to industries that have done less well, such as paper, printing & publishing and furniture, and in the South West a decline in chemicals & man-made fibres.

Peter Gutmann, Economist at Experian, said: ‘Manufacturers are far from convinced that the better growth they saw earlier in the year has become something more sustainable. The upbeat expectations for export orders in the north is encouraging. But not all regions are feeling the benefit of better growth in the Eurozone and serious question marks about the US economy mean exports cannot be relied upon to drive a lasting recovery.’

Doug Godden, CBI Head of Economic Analysis, added: ‘UK manufacturing output has stabilised at the national level, disappointing hopes for better growth. Take a closer look and there are interesting differences between regions. On a number of fronts, conditions for northern manufacturers are currently outshining those in the south.

‘What unites UK manufacturers is the higher costs they still face due to energy prices. The squeeze this puts on profits also adds to pressure on jobs, which are still being lost across the sector but especially in the south and east.’