British manufacturing output is beginning to stabilise after falling sharply since late last year, but recovery is likely to be slow, the Engineering Employers Federation said on Monday.
The EEF's third-quarter business trends survey showed the fall in output eased over the past three months, following a sharp deterioration in the previous quarter, while falls in orders and employment also steadied.
The output balance improved to -25 from -52 in Q2, its highest since the fourth quarter of last year, and the employment balance rose to -29 from a series low of -40.The total new orders balance rose to -25 from -52.
Manufacturers expect the pace of decline to stabilise further over the coming three months but the EEF said there was no evidence to suggest the sector was on the verge of a strong recovery.
"Output is starting to stabilise but there is little sign of confidence coming back," said EEF chief economist Steve Radley. "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," he added.
The balance for total output in the next three months rose to -2 from -13 with fewer manufacturers planning further cuts in output in the coming quarter.
RECOVERY PROSPECTS
The EEF figures reinforce other surveys that suggest Britain's economic downturn may be starting to ease.
But it is more downbeat than surveys from the Chartered Institute of Purchasing and Supply and official data showing output growth in recent months, which Radley said might be partly due to the greater weight of carmakers and aerospace firms in the EEF survey.
The EEF warned continued tightness in credit conditions could weigh on recovery prospects.
"This is a particular issue for smaller companies that are much more reliant on finance from banks," Radley said. "The credit situation will be one factor that will make the recovery slower than it would otherwise have been."
The survey showed manufacturers were more upbeat about the near future than in previous quarters, with more than a quarter of the 639 companies polled by the EEF between Aug. 5 and Aug. 26 expecting to see an increase in new orders.
The balance for new orders in the next three months rose to -2 from -18, with improvements in both the domestic and export orders balances although both remained in negative territory.
The EEF expects manufacturing to contract by 10.5 percent this year, roughly in line with its previous estimate of 11 percent, before posting moderate growth of 0.5 percent in 2010.
Overall the sector was set to contract 15 percent from peak to trough — on a par with the much longer downturn in the early 1980s.
The motor industry, which has seen a boost from scrappage incentive schemes, where governments give motorists cash to trade in their old cars for new ones, could see output fall again before it improves further.
"With scrappage schemes coming to an end in many cases now we are likely to see output actually falling back in the next quarter or so," said Radley.
