Production falls prompt call for ‘unconventional’ measures

Data published today by the Office for National Statistics showed manufacturing production in October fell 1.4% - its biggest drop in a single month since March 2005. The worst hit sub sectors were the paper, printing and publishing industries, down 3.6%, metals, which fell 4.2%, and transport equipment, 2.8%. Chemicals and man made fibres did better, increasing 1.6%. The three month figure, usually regarded as a more robust guide, was worse still, registering a drop of 2% in the three months to October compared with the previous three months. Again, transport (down 4.6%), paper, printing and publishing (down 3.4%, and metals (down 2.6%) sufferered most. Commenting, EEF chief economist Steve Radley said the figures were confirmation, if any were needed, that UK manufacturing was now in the eye of an economic storm which was broad based with no sector able to escape. He went on: “Of greater concern is that, given the pace of decline, industry and the economy may be in worse shape heading into next year and while Government and the Bank are on a high state of alert, they need to be willing to use unconventional measures to respond to an unconventional recession." Head of UK manufacturing at Barclays, Ray O'Donoghue, said the further across the board decreases, with the automotive industry being the worst hit, had been expected. “In particular, the proposed temporary closure of some automotive OEM plants will have a knock-on effect on the supply chain, causing manufacturers' working capital and stock levels to rise,” he went on. Despite the contraction in demand, a weakened sterling was providing some element of relief for exporters to the EU and US dollar denominated markets, O’Donoghue said. This, along with government measures, should help to stabilise both demand and consumer confidence. He concluded: “Looking ahead to next year, a combination of reduced inflationary pressure, interest rate measures and a fall in input costs, highlighted by the predicted further decrease in oil prices, could go some way to further alleviating pressures felt in the manufacturing sector which has proven itself to be resilient to economic challenges in the past.” Tom Lawton, head of manufacturing at BDO Stoy Hayward, believed the sector was “well and truly struggling”. He said: “For many months now most manufacturers have seen a consistent fall in new orders and have been either reducing working hours or staffing to try and keep their heads above water. However, for many the next few months will be sink or swim. The key to survival in these tough economic conditions will be optimising cash reserves through all possible means, including cost saving exercises and working capital management, particularly inventory reduction.”