Output down heavily for quarter but decline slowing

Posted on 7 Apr 2009 by The Manufacturer

Manufacturing suffered its worst decline in 40 years in the three months to the end of February, according to official figures released today by the Office for National Statistics.

A drop in production of 6.5 per cent is the worst since records began in 1968. Output is now down 13.8% on the same time a year before. While this figure is not quite as bad as the 14.2% fall analysts were expecting, “the sector’s still in pretty bad shape,” to borrow the words of Capital Economics’ Vicky Redwood.

Output decreased in 12 out of the 13 sub-sectors with only the coke, refined petroleum and nuclear fuels sub-sector experiencing a rise.

Something slightly more promising though was that on a monthly basis the rate of decline in output between January and February, 0.9%, was the slowest in half a year.

“Although manufacturing did not fall as sharply as feared, this should not obscure the seriousness of the problems facing the sector” said David Kern, chief economist at the British Chambers of Commerce. “Over the past year, we have witnessed a severe decline in output, made worse by the collapse in world trade.

“The sector’s skills base is facing real threats. UK manufacturing is already too small and avoiding further irreversible losses must be a national priority. We urge the Chancellor to take corrective measures in the Budget.”
Unsurprisingly, given the colossal world drop in demand for new vehicles, two of the most suffering subsectors remain the transport equipment industries and the basic metals and metal products industries. Those two dropped 13.1% and 11.2% respectively.

Tom Lawton, head of manufacturing at accountants BDO Stoy Hayward says: “Today’s results have shown that output is 12.2 per cent lower than for the same three months last year and has decreased for 12 successive months now, reflecting that life in the manufacturing sector has been nothing but a struggle over the past year.

“Much of this decline is being led by the fall in production of motor vehicles, which was down 30.7 per cent for the three month period, and an appalling 44.9 per cent for the same three months last year,” continues Lawton.

“Adding to the negative outlook is BDO’s recent Manufacturing Industry Watch report which has shown that 2,300 manufacturing businesses will fail in 2009, up from 1,500 in 2008.

“But with output decreasing at its lowest rate of decline in six months, this could suggest that the sector is beginning to show some signs of recovery,” he continues.

The ONS figures focus attention more keenly on the April 22 Budget, where manufacturers are hoping for several sympathetic fiscal measures to help them in the recession.

EEF, the manufacturers’ organisation, is calling upon chancellor Alistair Darling to use the forthcoming budget to implement initiatives which could relieve some of the pressure on manufacturers. These include scrapping incentives for automotive companies and a rise in tax-credits for R&D spend.

“Over the past few months we have heard the Government saying how it will do everything in its power to protect the manufacturing sector, but we now urge the Chancellor to set the wheels in motion by using this month’s Budget as the catalyst for developing appropriate aid packages to help restore the industry, and therefore consumer and business confidence,” adds BDO Stoy Hayward’s Lawton.

Read a blog by Steve Radley of EEF about the budget here.