Manufacturers suffer as downturn bites

MANUFACTURING confidence plunged in the East of England in the first quarter of 2008, falling further than in any other region across the UK. The quarterly Regional Trends Survey, published today by the CBI and Experian, found that the worsening economic outlook has dented manufacturers' confidence in most regions, however here in the East companies were the most pessimistic.

MANUFACTURING confidence plunged in the East of England in the first quarter of 2008, falling further than in any other region across the UK.

The quarterly Regional Trends Survey, published today by the CBI and Experian, found that the worsening economic outlook has dented manufacturers' confidence in most regions, however here in the East companies were the most pessimistic.

It also forecast that 18,000 manufacturing jobs will be lost in the second quarter of the year - 3,000 of them in this region.

According to the survey, total orders fell modestly in the East of England, largely due to weakness in the domestic market, however manufacturers expect a “significant fall” in the coming months. Similarly, output eased slightly in the first quarter but is expected to decrease further over the second quarter, against no change nationally.

However the region's mood lifts considerably when it comes to exports, with the weaker pound playing its part in boosting export demand.

Peter Gutmann of Experian said: “The survey suggests that the pound's 14% depreciation against the euro over the past year is helping to support manufacturing exports at a time when eurozone growth is faltering.

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“This is the one bright spot in a fairly downbeat picture. Without this boost, manufacturers would be facing even tougher conditions in the coming months.”

While there was a downturn in sentiment across most regions, Welsh firms bucked the trend with an upturn in confidence about the general business situation and for export prospects in the year ahead, on the back of a period that saw total orders surge to their strongest gain since 1995. Orders were also up in Northern Ireland, Scotland and the West Midlands. At a national level, the volume of total new orders remained stable, but numbers fell in six regions, notably in the South West and South East.

Meanwhile, export orders were up in Wales (reporting its most positive growth since the survey began), Yorkshire & the Humber, Scotland, the West Midlands and the South West. Only the North West and East Midlands saw marked falls in export demand.

Although national output was broadly unchanged in the past three months (contrary to expectations of healthy growth), the South West and South East & London regions joined the East of England in predicting a marked fall off in the second quarter.

Manufacturers across all the regions said they experienced sharp rises in unit costs in the early months of 2008, driven up by more expensive energy and raw materials. In many cases, the rises were the steepest recorded since the early 1990s. Record high increases were reported in Northern Ireland and the North West, with sharp increases also in the North East, Wales and Yorkshire & the Humber.

In an attempt to counter the impact of rising costs on profit margins, firms in most regions said they had raised prices.

Nationally, employment in manufacturing continued to fall over the quarter, in line with the long-term trend. The southern regions - East of England, the South East & London and the South West - all reported significant job losses. However the North East and Wales bucked the trend, reporting marked job gains. Continuing this trend, it is the south of the country that is predicted to bear the brunt of job losses in the second quarter.

Not surprisingly, given the downturn in confidence, most of those surveyed said they expected to reduce considerably their expenditure on buildings and equipment over the coming year.

Lai Wah Co, the CBI's head of economics analysis, said: “The slowdown underway in other parts of the economy is now being felt in the manufacturing sector. Look under the bonnet, however, and you'll see some marked regional differences.

“Welsh firms actually feel extremely upbeat after a very strong quarter, whereas the story in the South is of falling demand, shrinking output and declining jobs.”

The results of the CBI/Experian May 2008 Regional Trends Survey were based on 466 replies to the CBI's Industrial Trends Survey received between March 25 and April 9, 2008.