The rate of deterioration in Britain’s industrial output has slowed in the past three months from record levels in the previous quarter amid tentative signs of recovery in emerging economies, according to figures from EEF, the manufacturing employers’ association.
However, cashflow constraints and a scarcity of credit will ensure that conditions remain tough well into next year, according to a joint survey by EEF and BDO Stoy Hayward, the accountancy firm.
According to EEF’s third-quarter survey, published today, 25 per cent more companies reported a decline in their output in the previous three months than recorded an increase, giving a balance of minus 25. This is well ahead of the record balance of minus 52 given in the previous survey, three months earlier, and is the most encouraging level since the minus 11 reading in the survey released in the fourth quarter of last year.
Total new orders also recorded a balance of minus 25 in the EEF’s latest survey, again compared with minus 52 in the previous three months. The balance of new export orders improved to minus 26 from minus 50 three months before.
Steve Radley, chief economist for EEF, said: “Manufacturers are telling us output is starting to stabilise but there is little sign of confidence coming back. Production is well below pre-recession levels and the road to recovery is likely to be long and bumpy. Tight cashflow and continued problems with access to finance are likely to be major roadblocks.”
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Tom Lawton, the head of manufacturing at BDO Stoy Hayward, said: “Although the pace of decline is easing, it’s clear that the hoped-for recovery is not imminent.”
Meanwhile, the British Chambers of Commerce (BCC) said that the British economy would shrink by 4.3 per cent this year before recovering to grow by 1.1 per cent next year, in its quarterly update to its forecasts. The projections are broadly in line with the trend in recent figures from the Organisation for Economic Co-operation and Development and the International Monetary Fund, which cut 2009 growth estimates for Britain and raised them for 2010.
David Kern, the chief economist of the BCC, said: “The upturn in the economy has probably already started and we could see a relatively strong bounceback in the next few quarters. But sustaining the recovery will be very challenging and the risks of a relapse are high.”
The number of unemployed people was likely to rise to more than three million in the middle of next year, equivalent to 9.6 per cent of the workforce.
In June the BCC had forecast the economy would shrink by 3.8 per cent in 2009 before growing by 0.6 next year, and that unemployment would hit 3.2 million. The organisation, which represents more than 100,000 firms employing five million people, said Britain needed to cut public spending in all areas apart from business infrastructure to avoid endangering its AAA credit rating.