Survey plots sharp drop in demand for manufactured goods

And, says the CBI’s quarterly industrial trends survey, prospects for the next quarter appear even more negative. The survey shows demand plummeting, with 56 per cent of companies reporting a fall in the volume of new orders compared with the previous quarter, and just 14 per cent reporting a rise, giving a balance of minus43 – the lowest since July 1991. Ian McCafferty (pictured), the CBI’s chief economic adviser, said manufacturing in Britain, as elsewhere, was being hit hard by the economic downturn. “Sentiment and the outlook for the next three months are also very negative,” he went on. “Most firms expect conditions to get even worse, with further falls in orders expected, leading to more job cuts. Companies unsurprisingly plan to cut back investment sharply over the next year.” Seven out of 10 companies are less optimistic than three months ago, while just 6 per cent are more positive, producing the lowest negative balance since July 1980. Employment fell sharply, with 45 per cent of companies saying that they employed fewer people than in the previous three months. Furthermore, 70 per cent of companies said they were working below capacity and also have more stocks of unsold goods than they need to meet demand. Export orders fell despite the fall in Sterling and are expected to fall further in the current quarter. Looking forward to the next three months, firms forecast even weaker demand and expect output to fall more sharply over the next three months. Based on the survey findings, the CBI forecasts that official manufacturing output will fall by 4.5% in the first quarter of 2009. Companies also expect numbers employed to decrease more rapidly over the next three months. Investment is being hard hit by the downturn, with manufacturers expecting to spend less on investment over the next 12 months. David Raistrick, UK manufacturing industry leader at Deloitte, said the survey confirmed that the widely held view of a longer, deeper recession within manufacturing is looking more probable. “The lack of consumer confidence for buying manufactured items has significantly impacted the likes of the automotive industry. Original Equipment Manufacturers, their suppliers and more recently the retailers have all suffered with sizeable job losses already in that sector,” he went on. "The impact of the latest currency fluctuations is also affecting our exports, with manufacturers who have focused on delivering high value manufactured goods to these markets, enduring a tough ride. "Manufacturers are being tested to the extreme, with financial institutions tightening their credit lines, orders being delayed or cancelled, and the necessary reduction in their workforce putting pressure on morale. “However, there could still be some opportunities for manufacturers to grow. For manufacturers in a stable financial position, the current downturn presents a good opportunity to steal a march on competitors. With conventional finance for M&A effectively off limits in the current lending climate, firms will need to draw on their own resources to beef up their assets. Cash rich manufacturers with strong balance sheets are now being presented with attractive acquisition opportunities. “In the longer term, there is the prospect that the current economic turmoil may provide the catalyst for a rebalancing of the economy away from spending and consumption and towards investment and production. This could see a much bigger role for manufacturing.”