UK feels squeeze of US downturn

The number of UK manufacturers issuing profit warnings is set to increase as the US slowdown starts to bite, and industry experts warn the worst is yet to come.

The Confederation of British Industry’s March industrial trends survey shows manufacturing orders have taken another turn for the worse, with almost 40% of companies reporting order books were below normal. Only a quarter of managers expect orders to pick up in the coming months, the report says.

CBI chief economist Kate Barker said the US slowdown may have a more serious impact on the UK than first predicted. ‘I would be surprised if we’ve seen the full effects of the US slowdown yet. It seems quite likely the dollar will fall during the remainder of the year, and that will make things more difficult.’

Engineering firm Invensys last week blamed the US slowdown as it issued its second profit warning in six months and announced a rise in planned job cuts from 3,000 to 5,000.

After initially falling 10%, the company’s share price recovered and was again hovering at around 140p earlier this week.

Engineering and electronics group Laird warned the decline in the US electronics industry would affect its first-half profits, and Baltimore Technology said its first-quarter sales would be 20% below previous expectations.

‘Anybody who is exposed to US markets and hasn’t already issued a profit warning is likely to do so,’ Barker said.

A downturn in the US could have a severe impact on both exporters to the US, and US car makers based in the UK, according to Garel Rhys, professor of motor industry economics at Cardiff Business School. ‘Sales into the US by both European and US companies are very profitable, so any downturn in the US market would be very serious.’

He said many manufacturers were ‘whistling in the dark’ and hoping the slowdown will not be as bad as predicted, but signs of crumbling consumer confidence were appearing. ‘If consumers take any form of flight, the downturn could be much longer and more severe than expected.’

Production levels in the US car industry have fallen 20%, and engineering firm GKN warned this would hit its profits severely over the next six months.

Car production in the UK also fell to 129,099 units in February, down 19.8% on the same month last year. Exports fell by 23.1% on February 2000. Society of Motor Manufacturers and Traders chief executive Christopher Macgowan said the figures were disappointing but that in the long term output is set to increase.