Manufacturers braced for autumn slowdown after healthy first half

BRITAIN'S manufacturers enjoyed a bumper start to the year but are bracing themselves for an autumn slide as demand dries up.

That is the grim warning contained in two reports out today, from the CBI and Engineering Employers Federation (EEF).

They will back up those who argue that public sector austerity drives being undertaken by governments across Europe risk hitting the wider economy.

EEF chief economist Lee Hopley said: "Manufacturing has exceeded expectations so far this year with a broad-based recovery, supported by growth in world trade, a weaker pound and restocking.

"But with looming spending cuts here and more uncertainty in key markets, the prospects for different sectors will diverge over the coming year."

The federation's report, produced in conjunction with accountancy firm BDO LLP, still has the sector growing this year, by 3.8 per cent, before falling back to 3.4 per cent growth in 2011 - figures that are likely to outstrip the rest of the economy.

But Tom Lawton, head of manufacturing at BDO, said: "There is an underlying nervousness in the sector. We still don't know how the spending cuts announced in the last Budget will impact demand for manufactured goods, while a reduction in government support could also hit the UK's competitiveness in the global marketplace."

Meanwhile, the CBI's latest quarterly SME trends survey reveals a majority of firms are anticipating a fall in output in the next three months.

Its poll of more than 400 UK manufacturers, each employing up to 500 staff, also points to a slowdown in capital investment in buildings, plant and machinery, compared with last year.

Spending on training and re-training in the current financial year is expected to mirror that of 2009-10, the CBI added.

The negative outlook follows a period of solid growth for manufacturers, who have previously benefited from a weak pound and recovering global markets.

According to the CBI survey, 41 per cent of small and medium-sized companies saw output rise in the three months to July, against 20 per cent who reported a fall The resulting balance of +21 per cent marks the fastest growth since April 1995, when the balance was +25 per cent.

Export orders underpinned the recovery, with a balance of +22 per cent again the strongest outcome since April 1995.

Russel Griggs, chairman of the CBI's SME council, said: "Smaller manufacturers enjoyed a bumper quarter with production ramped up to meet growing demand and to rebuild stocks.

"Exports are leading the charge, reflecting the pick-up in global trade and the relative weakness of sterling, but firms are still seeing their profit margins squeezed because of rising costs."

He added: "Looking ahead, firms do not expect such strong growth to be sustained into the coming quarter.Output is expected to dip slightly as demand looks set to weaken."

Last month's industrial trends survey from CBI Scotland was also something of a curate's egg.

While the research showed output in growth territory for the fourth consecutive quarter, thanks to strong export business, there was a string of negatives, including stagnant domestic business, weak order books and evidence of rising costs.

Meanwhile, manufacturers expected to invest less in the coming 12 months.