Tue, Jun 02, 2009 page10

• UK factory output likely to plunge

  HOPE AHEAD Manufacturers expect the rate at which output is dropping to ease next quarter, which could indicate that the inventory cycle is coming to an end

  • REUTERS
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  British manufacturing output is set for a record fall this year, but growth could return by the end of the year, the Engineering Employers Federation (EEF) said yesterday.

  The EEF’s second-quarter business trends survey showed a sharp deterioration in output over the past three months, while falls in orders and employment steadied.

  The output balance for the second quarter slipped to minus 52 from minus 39 the previous quarter — the lowest since comparable records began in 1995 — and the employment balance also fell to a series low of minus 40.

  The total new orders balance rose to minus 52 from a series low of minus 54.

  Still, manufacturers expect the pace of decline to ease markedly in the coming three months, which the EEF said indicated that the inventory cycle was coming to an end.

  “We were expecting destocking to be quick and that has been confirmed,” EEF head of economic policy Lee Hopley said.

  “The automotive and metals sectors are close to the bottom of the stock cycle,” he said. “However, the timing of an upturn is increasingly uncertain.”

  The balance for total output in the next three months rose to minus 13 from minus 41 in the last survey, the first improvement since early last year.

  The EEF figures reinforce other surveys that suggest Britain’s economic downturn may be starting to let up after a 1.9 percent contraction in the first three months of this year.

  Policymakers have warned that an outright recovery is still some way off, however, and the Bank of England is therefore likely to keep interest rates at a record low of 0.5 percent at its policy meeting this week and for some time to come.

  The central bank last month topped-up its asset purchase program to £125 billion (US$200 billion) to boost lending and growth and may do so again in the coming months to give a further boost.

  The EEF survey showed manufacturers were much less pessimistic about the near future than in previous quarters.

  The balance for new orders in the next three months jumped to minus 18 from minus 42 and there were significant increases in the domestic and export orders balances, although these also remained negative.

  “Members say there has been a pick up in new enquiries and there are hopes this will be translated into firm orders,” Hopley said.

  Almost a fifth of the 678 companies polled by the EEF expect some growth in exports over the coming quarter while almost half reckon demand will be unchanged.

  The EEF expects manufacturing to return to growth in the fourth quarter of this year, with growth 0.4 percent for next year as a whole.

  But any improvement as the year progresses will not compensate for the steep decline suffered at the start of this year, Hopley said, revising down the EEF’s prediction for manufacturing output to a record 11 percent from 8.6 percent.

  Still, the peak-to-trough decline in output would probably come in at 14 percent, less than the 15 percent fall suffered in the much longer downturn of the early 1980s, she said.

  The EEF also expects companies to shed around 188,000 jobs this year, worse than its March forecast for 140,000 job losses.

  Tight margins and cash flow restrictions were partly to blame for the job-shedding and firms’ reluctance to invest, Hopley said.

  She said obtaining credit was still a problem for a lot of companies and that the government’s credit guarantee scheme was showing limited results.

  “The scheme is still a bit patchy,” she said.
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