Britain’s engineering and manufacturing sectors suffered their weakest performance in two years during the second quarter of this year according to one of the UK’s leading business surveys
Publishing its second quarter engineering outlook survey in conjunction with RSM Robson Rhodes, EEF the manufacturers organisation believes that despite some sectors continuing to see growth, the double hit of falling consumer spending and slow growth in the eurozone is now resulting in poorer prospects. As a result, confidence levels of manufacturers are now beginning to fall away.
EEF responded by significantly reducing its growth forecasts for engineering and manufacturing to 1.1% and 0.5%, down from 2.6% and 1.4% respectively. Whilst stopping short of an immediate call for a cut in interest rates EEF urged the Bank of England to stand ready to act if the economy overall continues to weaken over the summer.
EEF Chief Economist, Steve Radley, said:
"Manufacturers could only escape the double impact of a reluctant consumer and a poor eurozone for so long and we are now beginning to see the effects. Despite a positive picture in some industries, there has been a change in sentiment across the economy which will need addressing if growth begins to stutter."
Key findings:
Output still growing but balance down to 5%.
Sector picture mixed with some sectors positive and expanding faster than last quarter
UK order balance weakest since Q1 2003 at -2%
Margins still under pressure with cashflow weakening
No improvement in investment and job cuts return
Confidence falls and growth forecasts cut
By sector, the picture on output was mixed with basic metals, electrical equipment, electronics and mechanical equipment all remaining in positive territory. However, motor vehicles saw a sharp decline, possibly reflecting the situation at MG Rover, whilst other transport equipment and metals products also struggled to generate orders. The largest weakening in the domestic orders balances were in sectors closest to the consumer - electronics and motor vehicles.
The longstanding concern of pressure on margins remains and firms expect the downward pressure to continue, in turn feeding into weak cashflow positions. As a result, investment plans see no signs of improvement with only a quarter of firms intending to increase capital investment and half keeping plans on hold.
After some recent signs pointing to recruitment activity across some sectors and regions, the balance fell to -10%, its lowest level since Q4 2003. Companies remain similarly pessimistic about prospects for the next three months with the largest firms, those over 200 employees forecasting most job losses by a wide margin.
Bob Hale, chairman of RSM Robson Rhodes’ National Manufacturing and Technology Group, commented in response to the results:
"UK manufacturers really have to squeeze out all unnecessary costs, manage cashflow, supplier and customer relationships; as well as continue to invest in the business, particularly in the area of product development."