Manufacturing demand increases across UK

Published:  18 December, 2007

The last three months have seen a marked improvement in business confidence among manufacturers right across the UK, with virtually all regions benefiting from better margins and stronger order books, according to the latest Regional Trends Survey published by the CBI and Experian.

For the first time since February 1995, business confidence improved across all UK regions. Northern Ireland and Wales were the most optimistic relative to three months ago, while sentiment was particularly high in the East of England, South East & London, and Yorkshire & the Humber. The highest balance since 1994 was recorded in the East of England.

Similarly, for the first time since May 1995 total new orders rose for every UK region. While modest, the overall increase was the strongest for three years, and two regions - Wales and Yorkshire & the Humber - posted their sharpest increase in orders for 12 years.

The majority of regions have strong expectations of further gains in new orders during the next three months, led by Wales, the East Midlands and the North East. Scotland is exceptionally optimistic about new export orders, with the South West and the East Midlands also very upbeat.

Output trends confirm the encouraging picture. The increase during the past three months at a UK level, though less marked than in the previous quarter, was the second strongest since 2004 - with Wales, the North East, the North West and the East Midlands recording the strongest gains. Expectations that the momentum will be sustained are generally strong. Virtually all regions expect a healthy rise in factory output led by Northern Ireland, Wales and the East Midlands, and no region expects a decline.

Against a background of stronger demand at the UK level, manufacturers were able to increase factory-gate prices at a similar pace to the previous quarter. Domestic prices rose markedly across five of the regions, most notably Yorkshire & the Humber. This region also recorded a very healthy rise in export prices, but was exceeded by Northern Ireland.

At the same time, cost increases were the most modest since 2004 at the UK level, meaning manufacturers have been able to begin to repair profit margins by increasing output prices. The regional picture was, however, mixed with around half reporting slower unit cost increases than in the past year yet half reporting sharper increases.
Despite continued growth in output and orders, manufacturing employment fell at its fastest pace for a year. The sharpest falls were in four regions - the West Midlands, the South West, the South East & London, and East of England. Looking forward, the South West, the West Midlands and the North East are the most pessimistic about employment. There is some encouragement elsewhere with several regions, notably the East Midlands, East of England, the North West, Scotland and Northern Ireland more positive about near-term job prospects.

According to Experian estimates, based on the survey results, a further 30,000 jobs will be lost to manufacturing in the current quarter, a larger figure than in recent quarters, though still well short of the losses seen during the steep recession of 2001 to 2003. However, the South East & London is forecast to see the largest absolute fall (8000) with the West Midlands seeing 7000 job losses and the sharpest decrease in percentage terms (2.1 %).

Peter Gutmann of Experian said: "With expectations of strengthening factory output and export demand over the coming months, the survey presents a more encouraging picture of UK manufacturing than recent official data. Manufacturers have faced up to a strong pound and an improvement in business confidence reflects the more positive outlook for 2007."

Lai Wah Co, the CBI's principal economist said: "For the first time in over a decade, manufacturing demand has strengthened in every UK region, prompting greater business confidence across the country. Slower increases in unit costs mean companies can at last start to repair profit margins while raising their domestic prices.
"With expectations high for output growth, it seems manufacturers believe that they can continue to ride out a strong pound and slowing US economy. This proves that the hard work and efficiencies of recent years are now paying off."

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