Even with output holding up over the last few months, the EEF/Grant Thornton survey shows that a stagnant UK economy and a sharply deteriorating eurozone are now impacting on all sectors of manufacturing. However, the survey also shows the continued dilemma facing the Bank of England as companies’ price expectations continue to rise.
EEF believes it therefore falls to the government to address the rising risks of further economic weakness. By bringing forward policies that buttress business from gathering economic headwinds, EEF believes government can minimise cuts to jobs and investment and pave the way for an eventual upturn.
Commenting, EEF Regional Manager Tony Sarginson, said:
“Manufacturing in the North East has shown considerable resilience in the face of a credit crunch, a global economic slowdown and a massive increase in its costs. But there are now clear signs that these pressures are starting to take their toll on our regional companies
“Given the Bank of England’s hands remain tied in the short term, it is now essential the government tackles this turning point for the economy head on. It must avoid adding any further costs to business and put in place policies which will provide the building blocks for an upturn.”
Key findings:
· Output holds up in last three months
· New orders at 3 year low
· Domestic orders plummet but exports remain firm
· Price expectations rise
· Profit margins deteriorate
· Employment and investment intentions go into reverse
· Sharp decline in expectations
Output held up in the last three months for the twelfth consecutive quarter, eleven of which have been in double digit territory, highlighting the strength of manufacturing in recent years. However, the balance on orders fell eleven points to its lowest level for 3 years. This was largely due to fall in domestic orders (down to -13%) as export orders rose from +10% to +18%, fuelled by a weaker pound.
While the output balances remained positive across most sectors, five of the seven sectors surveyed reported weaker activity compared with the previous quarter. Basic metals and electrical equipment saw the sharpest falls, relative to last quarter whilst electronics and other transport equipment were the only two sectors to show an improvement in trading conditions, reporting strong balances of +46% and +43% respectively.
Tony went on to say “The picture in the North East was similar to the national scene. Positive balances of both output and order balances across the region have weakened.
As might be expected, the slowdown is now beginning to impact on employment and investment intentions. The balance on investment was down and there were slightly weaker employment balances. There appeared to be a case of employers prepared to taking a reduced margin
in an attempt to ride out the current economic climate.
Some good news was that more firms were able to raise both domestic and export prices in the past three months and there appears this will continue in the next three months.
There is a varying level of company experiences in our region depending on the markets they serve. For example, for those companies supplying the oil, gas, sub-sea and defense industries then there appears to be good growth but for those companies supplying the retail and consumer markets then there has been a decline in demand.”
Bob Hale, Head of Manufacturing at Grant Thornton, commented:
"UK manufacturing has looked to its export markets for buoyancy this year, but it seems many of the key markets we export to, particularly in Europe, are now coming down with the same malaise afflicting both the US and the UK. However, exporting to emerging markets is still seen as an insulating factor and those UK manufacturers that are able should now be exploring these markets with renewed vigour.
"The majority of manufacturers will now be part of the chorus calling for new Government initiatives to support the sector, as any respite will now be welcome in what is likely to be a winter of economic discontent."
Notes for editors
The survey was conducted between July 31st and August 20th, with 798 companies responding. The results presented cover the full range of engineering sectors – metals, metal products, mechanical engineering, electronics, electrical engineering, motor vehicles and other transport equipment.
The EEF/Grant Thornton Engineering Outlook Report is sponsored by Grant Thornton.
The Grant Thornton Manufacturing Group offers a wide range of financial and advisory services to both private and listed engineering companies. This team provides advice on mergers and acquisitions, raising finance, tax efficient investments/deal structuring, manufacturing/business strategy, recruitment/remuneration and accounting issues.
Grant Thornton UK LLP is a leading financial and business adviser with 31 offices nationwide. We are the UK member of Grant Thornton International, one of the world's leading organisations of independently owned and managed accounting and consulting firms providing assurance, tax and specialist business advice to privately held businesses and public interest entities. The strength of each local firm is reflected in the quality of the international organisation. All Grant Thornton International member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business.
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For more information contact Jenny Russell 0191 4165656 jrussell@eef.org.uk
EEF has more than 500 member companies in the North East of England and provides the most cost effective legal, employment law, employee relations and HS&E advice and training in the UK.
EEF employs teams of HR and employment specialists and has access to more than 60 lawyers and barristers to help its members understand the issues associated with the ever increasing introduction of legislation and regulation.
Membership of EEF gives immediate unlimited access to the team of specialists - including the largest specialist employment law team in the UK, which provides professional no-nonsense advice and guidance either by telephone or in person.
In addition, EEF represents the interests of its members at UK Government, European and international level, and can provide advice and support on issues and legislation that can affect almost every aspect of business.
Visit www.eef.org.uk/northern for further information