Manufacturing bears brunt of confidence crash

Posted on 15 Aug 2011 by The Manufacturer

Two reports released today show that business confidence in the UK is declining while accountants at BDO warn that exports are now ceasing to cushion manufacturing

The monthly Business Trends optimism index from accountancy firm BDO as well as figures from the Chartered Institute of Personnel and Development show the expectations of job cuts are on the rise.
The BDO optimism index fell from 95.6 in June to 95.1 in July, its lowest level since January.

The optimism index compiles the results of all business surveys from the CBI, the Bank of England and the Chartered Institute of Purchasing and Supply on a monthly basis to assess the overall outlook for business across sectors in the UK. The survey is compiled independently by the Centre for Economics and Business Research.

Instability in the manufacturing sector has been pointed to as the cause for declining confidence. The sector had been identified as the great hope of the British economy as it aimed to ‘rebalance’.

Disruption of global markets and weak domestic trade has undermined this ambition however, and caused recovery plans to falter. BDO partner Peter Hemington said “The rapid decline of the manufacturing sector, championed as the key to a rebalancing of the UK economy, is alarming,” he said.

Manufacturing is also one of the hardest hit industries as confidence declines. Gerwyn Davies, public policy adviser at the CIPD explained: “Increasing uncertainty about growth prospects in both the UK and global economies is now affecting hiring intentions, particularly in those industries such as manufacturing that stand to lose most in the event of a global slowdown.”

Access to finance was identified by Mr Davies, in an interview with the BBC, as a major blocker to recovering business confidence. In wake of recent updates on the Merlin project Mr Davies comments were pertinent. “The biggest factor that will drive jobs growth is access to finance,” he said. “The demand is there, but the banks simply aren’t lending,” added.

Exports have been strategically targeted by many manufacturers during the down turn as a way of accessing new markets and combating diminshed domestic demand. However, Mr Hemington said the sector would soon stop benefitting the weak pound and find international trade becoming harder.

Mr Hemington commented: “These days manufacturing in the UK is more about bolting things together that are made in the Far East.” He went on to explain, “The problem with that is that if you have a marked decline in sterling, it does help you with your sales price, but the price of the components you have to buy in from the Far East goes up.”