Manufacturers predict ‘the beginning of the end’ of recession but job losses continue to mount

In its latest business trends survey, the manufacturers’ organisation EEF said the effects of the recession appeared to be stabilising in some sectors while the manufacturing purchasing managers’ index (PMI) from the Chartered Institute of Purchasing and Supply (CIPS) hit a 12-month high. EEF said Britain’s manufacturers continued to face difficult trading conditions last quarter, but they expected the picture the picture to improve lter in the year. Head of economic policy Lee Hopley (pictured) said: “The weakness in world markets has hit the sector hard, but it looks like manufacturers are now close to the bottom of the cycle. Nevertheless companies will be navigating through the current economic storm in the months to come. And there are big question marks about when we will see any substantive signs of a recovery in demand. "While there may be some bright spots on the horizon, the government can not afford to think its work is done and lose focus on the economy. While companies are preparing for the upturn, government and the Bank of England need to ensure they can access the support they need from banks and credit insurers." Employment continues to be cut back and EEF now believes that job losses in the manufacturing sector will hit 188,000 for the year – 25% more that its previous estimate of 140,000. By sector, for the first time in six months, the output balances in basic metals and motor vehicles improved, reflecting the fact most of the significant production cuts by the automotive industry had already been carried out in the previous two quarters. However, the most marked decline in the output balance was in other transport. Looking forward to the rest of this year and next, although the outlook has stabilised, the sharp fall in activity in the first quarter of 2009 has led EEF to downgrade growth forecasts for 2009. Having previously predicted a 9% fall, it now expects manufacturing output to fall by 11% in 2009, in which a return to growth in the fourth quarter of 2009 precedes a modest recovery of 0.4% growth in 2010. Engineering output is forecast to decline by 17.5% this year and by 0.8% next year. The CIPS’ PMI remained below the no-change mark of 50.0 for the 13th successive month but after rising for the third month running, the PMI posted its highest reading for a year. Production and new orders continued to decline in May, but at the slowest rates for 12 and 14 months respectively. The cyclically-sensitive orders-to-inventory ratio – which tends to lead the production cycle – rose to a 32-month high in May. For output and new orders, large-sized companies fared better than SMEs. The capital goods sector vastly underperformed relative to the consumer and intermediate goods sectors, as clients remained unwilling to expedite new capital spending during a recession, said CIPS. Consumer goods producers reported an increase in production for the first time in 14 months. CIPS’ Roy Ayliffe said UK manufacturing looked like it may be close to turning the corner. He went on: “However, despite these slight improvements in overall trading conditions, ‘caution’ is hot on the lips of UK manufacturers struggling to survive the onslaught of the recession.”