Output and orders balances for UK manufacturing were at their lowest level since the end of 2008-2009 recession in the third quarter of the year, according to a survey from manufacturers’ organisation EEF and BDO.
Despite recent figures showing that the UK economy has grown 1% in Q3 2012, with manufacturing contributing to this promising result, EEF expects trading conditions to remain tough into 2013.
According to the survey, both the output and order balances declined for the third quarter running with the output balance down to zero from +4% in and +20% in 2012 Q2.
The orders balance also fell to +3% over the past three months.
While the domestic market continues to be a challenging one, the balance of responses on export sales have turned negative for the first time since 2008-2009.
Firms with a high degree of exposure to European markets have been particularly hard hit by weakening demand conditions.
The EEF survey also shows a pick up in activity is not being planned for in the short term and the uncertain outlook is leading to more caution on recruitment.
The balance of responses on employment dropped from +16% to zero over the past quarter, the first time intentions have not been positive since the middle of 2010.
EEF chief executive, Terry Scuoler, said: “There is little positive news in these figures. The extent to which industry confidence has fallen since this year’s Budget makes it ever more urgent for the government to get to grips with growth and get behind companies seeking to invest and succeed in new export markets.”
On the back of the survey, EEF reiterated its call for a concerted, joined up, cross- government growth plan ahead of this week’s Autumn Statement.
Mr Scuoler continued: “This week the Chancellor must send a strong signal to industry that the government is getting a firm grip on the levers of growth and getting business investment going again.
“The Autumn Statement should prioritise measures to support investment through the tax system and to increase competition in business banking.”
Commenting on the results of the survey, Tom Lawton, head of manufacturing at BDO, said: “The reduction in exports is a particular concern and, whilst this mostly reflects the turmoil in the eurozone, it also highlights the scale of the challenge in growing exports to emerging markets to offset the downturn in much of Europe.
“Investment intentions seem to be defying gravity but the ongoing issues around access to capital and an unsupportive tax structure may yet have a serious impact on actual investment. This survey shows that the sector is nowhere near where the government wanted it to be two years ago and emphasises the need for a long term industrial policy focused on manufacturing.”
Despite the slowdown in orders, investment balances have continued to hold up. However, they have weakened somewhat in the past three months to the lowest levels for almost three years, down from +15% to +10%.
Forecasts for manufacturing have been revised down for 2013. Output is expected to expand by 0.7% next year, compared with a contraction of 1.2% in 2012. The corresponding figures for GDP are -0.1% in 2012 and 1.2% in 2013.