Uncertainty over what market conditions will bring in 2009, along with a massive plunge in demand, is leading manufacturers to cut jobs, halt production and crop investment, the Confederation of British Industry warned today, as it published its quarterly Industrial Trends Survey for January.
The survey revealed a rapid decline in demand over the last three months and respondents believe this will intensify further still in the coming quarter. Fifty-six per cent of companies reported a fall in new orders from October to December while only 14 per cent said orders had gone up. The balance of -43 per cent is the lowest since July 1991. The balance last July was -3 per cent, indicating just how steep the downward trajectory has been for UK manufacturing.
Domestic orders were the main contributor to the drop in order books, though a weak sterling failed to stave off a fall in the export market and it suffered too.
Uncertainty of demand over the next 12 months led firms to announce they will cut investment significantly this year. For product and process innovation the balance was -25 while for training it was -30. For buildings it was -56 and for machinery it was -57 – the worst balance on record.
Overall, the CBI predicts there was a 4.3 per cent drop in productivity from the manufacturing sector over quarter four of 2008 and that it will fall again by 4.5 per cent over the next three months.
Ian McCafferty, the CBI’s chief economic advisor, said: “The survey shows that manufacturing in Britain, as elsewhere, is being hit hard by the economic downturn. Demand for goods in the manufacturing sector has plummeted dramatically in the last three months.
“Sentiment and the outlook for the next three months are also very negative. Most firms expect conditions to get even worse with further falls in orders expected, leading to more job cuts. Companies unsurprisingly plan to cut back investment sharply over the next year.
The biggest individual subsectors to suffer have been building materials, automotive equipment and glass and ceramics. No subsector reported a rise though the ones to fare best were chemicals and rubber products.
Employment levels (balance of -38), prices (-8) and excess stock (+27), across all subsectors, have, suffered as a result. Unsurprisingly, given recent headlines, 90 per cent of UK automotive plants are now operating below capacity. This compares with 70 per cent of manufacturing firms overall with this figure up from 62 per cent in October.
While lack of orders was by far the most cited constraint on activity, the second biggest cause was given as credit restraints. When questioned, McCafferty said he was optimistic that recently announced government proposals to stimulate lending would provide some respite in this regard.
The CBI’s release comes the day after official figures from the ONS revealed that 78,000 people, across all British business, were made redundant in the three months to November. That brought 2008’s total redundancies up to that point to 101,000. The CBI predicts that the manufacturing sector alone lost 48,000 jobs in quarter four of 2008 and fears a further 60,000 will go in the first quarter of 2009.
When asked by The Manufacturer whether there was now a fear that a significant number of manufacturers could again now leave UK shores in favour of low-cost economies, McCafferty said there was nothing at this point in time to suggest that would be the case. On the contrary he said certain conditions like the weak value of sterling may make it opportune for manufacturers who had previously moved abroad to return production to Britain.
David Raistrick, UK manufacturing industry leader at Deloitte, said though the survey results were by no means strong, there are still positives in store for UK manufacturing this year.
“Manufacturers are being tested to the extreme,” he said, “with financial institutions tightening their credit lines, orders being delayed or cancelled, and the necessary reduction in their workforce putting pressure on morale.
“However, there could still be some opportunities for manufacturers to grow. For manufacturers in a stable financial position, the current downturn presents a good opportunity to steal a march on competitors. With conventional finance for M&A effectively off limits in the current lending climate, firms will need to draw on their own resources to beef up their assets. Cash rich manufacturers with strong balance sheets are now being presented with attractive acquisition opportunities.”
The CBI’s quarterly Industrial Trends are based on the responses of over 500 of its manufacturing members.