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Manufacturers continue to struggle as a further decline in orders undermined output and confidence in most UK regions, according to the latest quarterly Regional Trends Survey published by the CBI.
The fall in output at a national level in the past three months was despite survey expectations of little change. For the second survey running, the overall decline was driven primarily by the weakness of domestic orders, with the drop more severe than expected in most regions.
But although export orders also remained on a downward path, the UK-wide fall was modest and there were a number of regions that bucked this trend.
Yorkshire & the Humber and the East Midlands were major exceptions to the downbeat national picture.Yorkshire & the Humber posted its strongest gain in total new orders since August 2004, while the rise in export orders across the East Midlands was the sharpest in over a decade.
The North West and South West experienced a modest rise in total orders and export orders respectively for the second successive survey.
The sharpest falls in total orders were registered in Northern Ireland and the South West, while Northern Ireland and the North East saw the biggest decline in export orders, the latter recording its largest drop in 18 months.
Added to the weak demand for goods, rising costs meant that company profits were squeezed across most UK regions. Cost increases were largely due to higher oil and gas prices, and were substantial in all regions, with the exception of Yorkshire & the Humber and the South East & London, where increases were fair to modest.
A sustained rise in unit costs is anticipated over the next three months and is expected to keep profit margins under pressure, although the expected upturn in domestic and export prices across some regions, notably Yorkshire & the Humber, the North West and Wales, are expected to help to reduce this impact.
The relative buoyancy of Yorkshire & the Humber across many indicators is a key feature of the survey. The upturn in output, bucking the national trend, was the sharpest in 18 months and reflects underlying strength across a number of sectors, notably Engineering.
The result is that overall confidence, output, investment plans and profitability in the region are among the most positive in the UK.
Output trends in the past three months were mixed.
As in the previous quarterly survey, Northern Ireland was the worst affected, followed by the South West and the West Midlands.
Only two regions reported an upturn, Yorkshire & the Humber and the East
Midlands, which recorded a modest increase for the second successive survey.
But the overall outlook over the coming months is more encouraging, with volumes
expected to stabilise at a national level. Although several regions report
further, albeit more modest declines, four regions – led by the South East &
London – expect output to increase in the next quarter.
The problems facing UK manufacturers are further highlighted by an increase in
the proportion of firms working below full capacity, which returned to levels
last seen in mid-2004.
But there were marked regional differences. The largest increase was in Wales,
where the proportion had been well below the UK average in the past 12 months,
followed by Yorkshire & the Humber and the South West.
By contrast, the proportion of firms working below full capacity fell in five
regions - led by the South East & London and the West Midlands, which both
dropped below the national average.
UK manufacturing continued to shed jobs over the past three months. The pace of
job losses was particularly marked in Northern Ireland, the South East & London
and the West Midlands. More modest job losses were reported elsewhere, with the
exception of Scotland, where employment rose for the third consecutive survey,
and the North West where the balance remained broadly unchanged following three
years of sustained job cuts.
Doug Godden, CBI Head of Economic Analysis, commented: "With some notable
exceptions, manufacturers continue to experience difficult times, with high
energy costs continuing to add pressure to profit margins. “Whilst a reduction
in interest rates this month appears unlikely, with inflationary pressures
remaining at bay, the Bank of England must stand ready to cut in the months
ahead should the nascent economic recovery fail to gain momentum."
Source:
RedAlert
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