Weak exports subdue manufacturing output

A report published today by the CBI and Experian says growth in manufacturing output subdued across the UK in the three months to October as exports were hit by weak international demand.

The latest regional trends survey shows three regions were hardest hit. Output fell sharply for the third consecutive survey in Northern Ireland and for the second successive survey in the West Midlands and the Northeast.

Yorkshire and Humber saw the strongest upturn in output with a third successive quarter of expansion. More modest growth was seen in five other regions, led by the East Midlands, Scotland and the Southeast and London.

Business optimism fell in most regions, especially in Northern Ireland, East of England and the Southeast and London. But Yorkshire and Humber – buoyed by increasing output, orders and export deliveries – showed increased optimism, as did the Northeast and Southwest.

Export orders fell in most regions, markedly in Northern Ireland and the West Midlands. This is reflected in a widespread fall in export optimism, although Scotland recorded a sharp upturn in export orders and is positive about prospects for the year ahead.

According to the report, manufacturing in the West Midlands remains particularly down beat. Business and export confidence deteriorated while expectations for output were the most depressed in Britain. Firms said orders are on a steady downward path and unit costs are rising faster than any other region.

Employment is said to be showing tentative signs of improvement after three poor years but estimates based on the survey still suggest that a further 22,000 jobs will be lost in the current quarter.

Three regions – Wales, Southwest and Yorkshire and Humber – have experienced six months of rising employment, while Scotland has seen stability followed by a mild upturn. Contraction continued in Northern Ireland, the Southeast and London and West Midlands.

Peter Gutmann of Experian said: “International demand has been less supportive to manufacturing than might have been expected, given that the global economy continues to expand at a healthy pace and that sterling has eased in recent months. The muted picture reflects the fact that export orders have been very disappointing.

“It is nevertheless significant that most regions posted increases in output, some quite marked, in contrast to the decline seen in official figures. This is not the first time this year that survey evidence and official data have diverged.”

Doug Godden, CBI Head of Economic Analysis, added: “The impact of rising costs on profitability is a major issue for the second survey in succession. We know from the national results that energy-intensive and metal-related industries are being hit hardest.

“The regional pattern reflects this, with the West Midlands and northern regions of England seeing the sharpest cost increases. It is critical that the Bank of England and the Treasury take note. Now is not the time for further increases in interest rates or rises in business taxation.”

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