Gloomy outlook for manufacturing a threat to economy

Fears mounted over the outlook for UK manufacturers and the wider economy yesterday as the industry’s expectations for output hit the lowest level for more than a year. The dreary outlook, revealed in the latest industrial trends survey from the CBI, stoked concerns that the economy could shrink in the closing months of 2012.

It came as Bank of England policymaker Martin Weale said there was a “significant risk” of a contraction in the fourth 
quarter ahead of a likely pick up in the new year – thereby avoiding a so-called “triple-dip” recession.

The CBI poll of about 400 manufacturers in November showed that only 19 per cent expect to increase their volume of output over the course of the next three months, while 28 per cent expect it to fall. The resulting balance of minus 9 per cent is the worst result since October 2011.

However, there was some hope as companies reported an improvement in export orders, with a balance of 12 per cent reporting a drop, compared with 22 per cent in October.

This was driven by sectors including mechanical engineering, food, drink and tobacco and motor vehicles and transport equipment, the CBI said.

But the chemicals sector – the largest export sector in the survey – reported a sharp drop.

Manufacturing accounts for about 15 per cent of the UK economy.

Anna Leach, CBI head of economic analysis, said: “Overseas demand has improved in this month’s survey, but this has not been enough to lift overall demand and support the modest expectations for growth in production levels found in the previous survey.

“Business confidence continues to be undermined by uncertainty over events in Europe and the fast approaching US fiscal cliff. However, we expect UK growth to pick-up somewhat in 2013 as this uncertainty gradually subsides and global growth increases.”

Howard Archer, chief UK and European economist at IHS Global Insight, the forecasting group, said the report added to the “largely disappointing news out so far for the fourth quarter”.

He added: “It is evident that manufacturers still face a tough environment. Domestic demand for manufactured goods is handicapped by current muted investment intentions and tightening public spending.”

David Tinsley, UK economist at banking group BNP Paribas, said: “There was little sign of an improvement in the UK manufacturing picture from the CBI industrial trends survey for November.

“Things aren’t shaping up too well for Q4 at the moment. Our forecasts are for a contraction in GDP, raising the spectre of a triple dip.”

l The eurozone is on track for its weakest quarter since the dark days of early 2009, according to business surveys that showed companies toiling against shrinking order books in November.

Service sector firms like banks and hotels that comprise the bulk of the economy fared particularly badly this month, and laid off staff at a faster pace.

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