Hard times

The latest quarterly CBI Industrial Trends survey reveals poor results for the manufacturing industry, with orders for UK goods at their lowest rate since 1999.

Advisors are concerned that constraints on capital are now affecting manufacturers in a way that had previously not been the case. A reduction in output and demand for manufactured goods has resulted in the largest single quarter fall in manufacturing confidence for 28 years.

Figures for the last three months show that 46 per cent of manufacturers reported a decline in the number of new orders, while only 16 per cent said they had increased.

Output has fallen by 31 per cent and domestic orders by 42 per cent. Manufacturers are expecting worse figures in the coming quarter with only four per cent showing more optimism about the situation than three months earlier.

The survey also revealed that 16 per cent of manufacturers cited difficult lending conditions as a constraint on investment, with nine per cent stating their output would be reduced due to credit limitations in the final quarter.

Job losses were not as high as manufacturers had expected, with a 15 per cent reduction in staff. However, based on the survey results, the CBI predicts that 23,000 manufacturing jobs will be lost in the third quarter, increasing to 42,000 in the fourth quarter.

Domestic price inflation has eased over the last quarter and is expected to soften further in view of unit costs and weak demand.

Ian McCafferty, the CBI’s chief economic adviser, said: ‘This survey was conducted during a period of exceptional economic turbulence, so it is unsurprising that confidence has taken such a hit.

'However, the sharp falls in orders and output show that the slowdown in the UK economy is now spreading to sectors previously resilient to the weakness in the banking and housing markets.

‘We can but hope that the recapitalisation of banks and the cut in interest rates, which took place just as the survey closed, will prevent a further credit squeeze over the winter.’