Downturn in UK Manufacturing Accelerating

The pace of the downturn in manufacturing has accelerated in the first quarter of 2009 and shows no signs of easing according to the latest survey from EEF, the manufacturers’ organisation.

The survey of nearly 800 firms in the manufacturing sector shows a number of indicators hitting record low levels, leading the EEF to warn that the sector faces a significant squeeze for the rest of this year with only a minimal recovery in 2010.

Some of the survey’s key findings:

  • Output and orders have hit record lows
  • 140,000 job losses are now forecast in manufacturing in 2009
  • Forward-looking balances are the lowest in the history of the survey
  • Growth forecasts have been revised downwards for 2009 and 2010
  • The downturn has now spread to all sectors and regions.

Firms in the motor vehicles sector reported a sharp fall in both output and orders. This has had knock-on effects on firms in the metals sectors, who supply car manufacturers, for example. After motor vehicles, the metals sectors reported the weakest output and orders balances.

As was the case in the last quarter of 2008, the weakening automotive sector has negatively impacted the West Midlands’ economy.

As might be expected, the slowdown is now having a significant impact on employment and investment intentions. Large companies, with more than 200 employees, were the most likely to report job cuts. Similarly continued downward pressure on cashflow has led companies to cut back their investment plans. This could have potential implications for companies when demand picks up again.

Given the speed and scale at which the downturn has hit manufacturing, firms are extremely pessimistic about the next three months.

The forward-looking output and orders balances also hit new record lows, EEF has downgraded its economic forecasts with manufacturing output falling this year by 8.6% with only a pick up of 0.2% in 2010. In engineering, output is forecast to decline by 10.9% in 2009 and by 0.9% next year.

Commenting, EEF Chief Economist Steve Radley, said:

“There is simply no hiding the fact these figures make grim reading. The past three months have been extremely difficult for manufacturers, with markets at home and abroad showing severe declines. However, whilst few firms expect things to get better in the near future they are also focusing on making sure they are ready to take advantage of the eventual recovery.

“The priority for government remains getting credit flowing again and helping companies to invest. In addition, there is now an urgent need to support companies in hanging on to the skilled workers they will need for when the upturn comes. Government must now consider all possible avenues to help companies deliver alternatives to redundancy.”

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