How will government spending cuts affect manufacturing in 2011?

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On Monday we published Economic Prospects, 2011: detailing our views on what the year ahead is likely to hold for manufacturing. Over the last few days we've set out what we think are likely to be the biggest challenges for manufacturing in the coming year. These include: Eurozone instability; commodity price inflation; and access to finance. The fourth challenge is the likely impact of government spending cuts.

In 2011 government spending will fall substantially and manufacturers are concerned about the impact of this. Nearly one fifth of manufacturers expect to see a direct loss of orders. In addition, 40% of companies expect to see a loss of orders through their supply chains. It is not only lost orders that are a concern: a quarter of manufacturers surveyed were worried about cuts to business support programmes.

Figure 1: manufacturers expect lost orders, but greater clarity following government cuts(% of manufacturers expecting an impact on their company)

There is some good news too: one in six companies expect that the government's spending cuts will make the business environment clearer, and a few saw new market opportunities arising from a change in spending focus. What is more, 45% of manufacturers thought that reducing the deficit would improve market confidence in the UK economy.


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