Global gloom taking its toll on small manufacturers, says CBI

By SCOTT REID
Published on 06/08/2012 00:00

FEARS of a protracted recession will intensify today amid signs that Britain’s manufacturing engine room is running out of steam.

Publishing its latest SME trends survey, the CBI said sentiment among small- and medium-sized manufacturers had deteriorated, while output had fallen for the first time since autumn 2009. The business lobby group, which polled hundreds of firms across the UK for the quarterly report, warned of a “challenging” domestic backdrop, uncertainty over the eurozone and a “broader loss of momentum” in the global economy.

There were a couple of brighter spots, though, with firms expecting output to be broadly flat in the coming quarter. Many respondents are also sticking with their plans to take on additional staff.

The survey, conducted between 25 June and 11 July, follows a raft of downbeat signals from the manufacturing sector, which accounts for less than 15 per cent of the economy but had been showing tentative signs of recovery since the end of the 2008-9 recession.

Some areas, including car manufacturing, have been performing strongly thanks to resilient export markets outside of the eurozone.

But last week, the closely-monitored purchasing managers’ index (PMI) showed Britain’s manufacturing sector shrinking at its fastest pace in more than three years.

The main activity measure fell to 45.4 in July – its lowest reading since May 2009 – from 48.4 a month earlier, which had itself been revised down. Any reading below 50 indicates the sector is contracting.

Sister PMI reports for eurozone member countries painted a similarly weak picture, while China’s PMI fell to an eight-month low of 50.1 – just within growth territory.

Meanwhile, official figures due out tomorrow are likely to show a slump in UK industrial production during June, One analyst has already warned of a “truly dire” outcome.

Today’s CBI survey notes 23 per cent of manufacturers had reported a rise in output volumes, while 28 per cent said they had fallen. The resulting balance of -5 per cent marks the first fall since October 2009’s reading of -14 per cent.

Lucy Armstrong, chairwoman of the CBI’s SME council, said: “Challenging domestic conditions, continuing uncertainty over the eurozone, and a broader loss of momentum in global growth, are clearly taking their toll on the UK’s smaller manufacturers.

“Production has fallen over the last three months and sentiment has deteriorated, while growth in demand has stalled, with little improvement expected in the coming quarter.” 
But she added: “Nonetheless, smaller manufacturers have stuck by their plans to take on more staff – an increase in numbers employed is perhaps one of the few bright spots in an otherwise muted picture.”

The CBI said that investment intentions for the next 12 months had also softened. Spending on plant and machinery has hit a three-year low.

Elsewhere, average unit cost inflation fell sharply, easing some of the pain for manufacturers. Firms reduced domestic output costs slightly, while export prices were held steady for the third consecutive quarter.