Diversification and dispersal may provide economic insualtion

Figures from the Office for National Statistics showed September output from the manufacturing industries falling by 0.8 per cent with significant decreases in output of 1.8 per cent in the transport equipment industries, 1.7 per cent in the chemicals and man-made fibres industries and 1.3 per cent in the paper, printing and publishing industries. The latest quarterly data, usually considered a more reliable indicator, showed output decreasing in the three months to December by a whopping 1.3 per cent compared with the previous quarter and 1.9 per cent lower than the same period a year ago. The most significant quarterly falls were 2.6 per cent in the electrical and optical equipment industries, 2.3 per cent in transport equipment and 1.7 per cent in paper, printing and publishing. "The 1.3% drop in manufacturing output is one of the largest we have seen this year,” said Ray O'Donoghue (pictured), head of UK manufacturing sector at Barclays Commercial Bank. While it was expected, it clearly demonstrated that the current economic conditions were really starting to bite, he went on, particularly for sectors such as automotive which had seen a steeper drop off in activity. “The combination of increased costs and falling demand, together with global economic uncertainty means manufacturers are having to reduce their cost base to match the decline in activity, scale back on capital expenditure in order to reserve cash and constantly revise their forecasting,” O'Donoghue believed. “However, despite these pressures there is a degree of insulation for those manufacturers that have a diversified product range and geographical spread, particularly those serving the Middle East and Southeast Asia which continue to be strong. The fall in the pound is both a curse and a blessing. Manufacturers exporting to Europe continue to see the upside of a strong Euro, while for others it represents yet another increased cost.” At the manufacturers’ organisation EEF, chief economist Steve Radley, said the figures confirmed that the decline in manufacturing was accelerating and reinforced the need for bold and decisive action by both the Bank of England and government. “A full point cut is the bare minimum required from the Bank whilst government must use the forthcoming pre-budget statement to set out timely and targetted measures to help business," Radley insisted.