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Manufacturers' optimism about future export prospects has improved for the first
time since July 2004 with several regions showing a particularly marked
improvement, according to the Regional Trends Survey by Experian.
The strong economic picture globally and, in particular, signs of recovery
across the Eurozone market, has helped boost UK demand in recent months.
A small improvement in domestic conditions also supported national business
confidence in the past quarter, which stabilised following 18 months of
deterioration.
In four UK regions, the upturn in export sentiment was particularly marked, with
the East Midlands seeing the strongest improvement since mid-2003. Scotland, the
East of England and the South East & London also experienced a surge in
optimism.
The West Midlands saw an encouraging, if modest, rise in export confidence,
boosted by a rebound in total orders – the strongest for two years, with
chemicals and man-made fibres and metal manufacturing doing particularly well.
In Scotland, optimism about export prospects was underpinned by a marked rise in
total orders, the sharpest since the survey began in 1988. Output rose quite
strongly, employment turned up and the number of firms working below full
capacity fell markedly. The outlook for the next three months is similarly
up-beat, with a large number of respondents expecting further output gain.
The UK as a whole posted a marginal increase in total orders, reversing more
than a year of steady decline.
Export orders fell slightly at the national level, but this masked a wide
variation in performance across the regions.
There were strong upturns in Scotland and Northern Ireland, where the rise
brought to an end two years of falling orders. This was further reinforced by
the West Midlands, which posted its sharpest gain for more than a decade, with
steady increases in the South West, the East of England and the North East.
Output at the UK level stabilised in the past three months, in line with
expectations, following a year of contraction.
The South East & London extended its run of falling output, but the decline was
much smaller than in the past year.
Among the regions experiencing a rise, the North East recorded the strongest
gain, its sharpest since mid-2004. Scotland, the West Midlands and East of
England also posted increases in output.
Expectations for the next three months suggest that output at the national level
will show an encouraging rise, with particularly strong expansion expected in
the East Midlands.
Manufacturing
Manufacturing continued to shed jobs, with sharp declines in employment
experienced across virtually all the regions.
In the South East & London, the East Midlands, Wales, the South West, East of
England and the North East, the job losses were the most severe for a year.
The only exception was Scotland, where employment rose for the fourth
consecutive survey. Job prospects in the coming months are similarly downbeat.
The sharpest contraction is expected in the South East &
London, followed by Wales and the South West. But there is some encouragement,
with the East Midlands and Scotland both expect a modest rise in employment,
while conditions in the North East are set to stabilise for the first time in a
year.
The future
According to Experian estimates based on the survey results, a further 28,000
manufacturing jobs will be shed in the second quarter of this year.
The job cuts expected in the current quarter (Q2 2006) continue the long-term
downward trend in manufacturing employment. The most significant job cuts in
absolute terms are expected in the South East & London (9,000), which also shows
the largest percentage fall (1.7 per cent).
Elsewhere, Yorkshire & the Humber, East Midlands, East of England, the South
West and the West Midlands are expected to shed a further 3,000 jobs each in the
second quarter.
Upturn 'far from conclusive'
Dimitri Gunawardena, Economist at Experian, commented: “The more optimistic
survey results broadly reflect the improvement in the official data, where
manufacturing exports have benefited from stronger external demand, particularly
from the vital Eurozone market.
"However, the , with sustained import penetration from low-cost countries still
a major challenge for UK manufacturers. While the modest improvement in export
optimism is encouraging, the survey recognises the prevailing downside risks to
growth, notably from a reversal of the recent upsurge in Eurozone demand and
mounting cost pressures as a result of higher energy prices.”
Ian McCafferty, CBI Chief Economic Adviser, added: "Although regional
performance has been mixed, it is clear that manufacturers are at last beginning
to recover from their drawn-out downturn, albeit gradually.
"The majority expect output to expand in response to improving demand over the
coming months, most notably in the East Midlands and Scotland, which is
encouraging.
"However, ongoing pressure on profit margins remains a concern, as commodity and
energy prices continue to rise steeply but the ability to raise output prices is
very limited across all regions."
Source:
RedAlert
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