Manufacturing output suffers further fall

Posted on 9 Jan 2009 by The Manufacturer

The latest manufacturing figures from the Office for National Statistics have left analysts fearing that the downturn has accelerated beyond the grim predictions that had already been forecast.

Manufacturing output, the ONS reveal, is now slipping faster than it has since 1981. It fell 2.9 per cent in between October and November last year; far surpassing the 0.7 per cent the City had predicted. That brought output for the year down 7.4 per cent, its biggest decline since 1981.

For the three months to November, the fall in output was 3.3 per cent. The ONS said the worst suffering sub-sectors in this period were the paper, printing and publishing industries (down 4.9 per cent), the in the transport equipment industries (down 5.7 per cent) and the basic metals & metal products industries ( also down 5.7 per cent). It said no industry recorded a significant increase.

In a separate release, the ONS has also revealed that producer prices, which analysts had expected to fall, actually stayed the same in December compared with the previous month.

In response to the ONS figures, Ray O’Donoghue, Head of UK Manufacturing at Barclays said:

“The 3.3 per cent fall in manufacturing output in the three months to November 2008, compared with the previous three months, is the most significant decline we have seen in recent years and reflects a general fall in demand for goods ranging from cars to household goods.

“In particular, companies supplying the automotive sector continue to feel the greater share of the strain as OEMs close their doors for significant periods in order to destock. In addition, the 5.7 per cent drop in basic metals in part reflects the uncertainty created by the rapid decline in steel prices, causing many buyers to defer major steel-based purchases in the short term.”

But current trends do not paint an entirely grey picture, said O’Donoghue. “Despite the difficulties of the current climate, cash rich businesses with well capitalised balance sheets are now beginning to contemplate attractive acquisition opportunities that will add long term value to their existing businesses. The falling price in several key manufacturing inputs and a favourable exchange rate for exporters also offers some consolation.”

However Paul Dales of Capital Economics did not draw on the positives in his summary; “It’s not a good time to be in industry,” he said.

Yesterday the Bank of England once again dropped its base interest rate in an attempt to kick-start the economy. At 1.5 per cent, down from 5 per cent in mid-last year, it is now at a 315 year low.