British manufacturing output is set for a record fall in 2009, but growth could return by the end of the year, the Engineering Employers Federation said on Monday. The EEF's second-quarter business trends survey showed a sharp deterioration in output over the past three months, while falls in orders and employment steadied.
The output balance for Q2 slipped to -52 from -39 in Q1, the lowest since comparable records began in 1995, and the employment balance also fell to a series low of -40. The total new orders balance rose to -52 from a series low of -54.
Still, manufacturers expect the pace of decline to ease markedly in the coming three months, which the EEF said indicated that the inventory cycle was coming to an end.
"We were expecting destocking to be quick and that has been confirmed," said EEF head of economic policy Lee Hopley. "The automotive and metals sectors are close to the bottom of the stock cycle."
"However, the timing of an upturn is increasingly uncertain."
The balance for total output in the next three months rose to -13 from -41 in the last survey, the first improvement since early 2008.
The EEF figures reinforce other recent surveys that suggest Britain's economic downturn may be starting let up, after the 1.9 percent contraction in the first three months of this year.
Policymakers have warned that an outright recovery is still some way off, however, and the Bank of England is therefore likely to keep interest rates at a record low of 0.5 percent at its policy meeting this week and for some time to come.
The central bank last month topped-up its asset purchase programme to 125 billion pounds ($200 billion) to kick-start lending and growth, and may do so again in the coming months to give a further boost.
HOPES FOR IMPROVEMENT
The EEF survey showed manufacturers were much less pessimistic about the near future than in previous quarters.
The balance for new orders in the next three months jumped to -18 from -42 and there were significant increases in the domestic and export orders balances, although these also remained negative. "Members say there has been a pick up in new enquiries and there are hopes this will be translated into firm orders," Hopley said.
Almost a fifth of the 678 companies polled by the EEF expect some growth in exports over the coming quarter while almost half reckon demand will be unchanged.
The EEF expects manufacturing to return to growth in the fourth quarter of this year, with growth 0.4 percent for 2010 as a whole.
But any improvement as the year progresses will not compensate for the steep decline suffered at the start of this year, Hopley said, revising down the EEF's prediction for manufacturing output to a record 11 percent from 8.6 percent.
Still, the peak-to-trough decline in output would probably come in at 14 percent, less than the 15 percent fall suffered in the much longer downturn of the early 1980s, she noted.
The EEF also expects companies to shed around 188,000 jobs this year, worse than its March forecast for 140,000 job losses.
Tight margins and cashflow restrictions were partly to blame for the job-shedding and firms' reluctance to invest, Hopley said. She added that obtaining credit was still a problem for a lot of companies and that the government's credit guarantee scheme was showing limited results.
"The scheme is still a bit patchy," she said.
