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UK Manufacturers more Downbeat than at Any Time this Year - Survey

Date : 12/03/2012 @ 6:00AM
Source : Dow Jones News
Stock : Lloyds Banking Grp. (LYG)
Quote : 4.79  0.0 (0.00%) @ 6:24PM
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UK Manufacturers more Downbeat than at Any Time this Year - Survey

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LONDON--Confidence among U.K. manufacturers has weakened in recent weeks, with the outlook in the sector for the coming months more downbeat than at any time this year, a quarterly survey by the EEF manufacturers' organisation showed Monday.

The growing pessimism adds to pressure on Chancellor of the Exchequer George Osborne ahead of his autumn budget statement Dec. 5, when he is expected to lower his economic and fiscal forecasts for the country. In its survey, the EEF once again urged Mr. Osborne to launch supportive policies to help lift this key sector and boost economic growth.

A separate business survey Monday by Lloyds Bank (LLOY.LN) highlighted the difficulties experienced across the wider business landscape, with firms reporting that November trading was stronger than in October, but still weaker than at any time in the third quarter. Firms said their expectations for economic growth were unchanged in November from October.

Manufacturers surveyed by the EEF said they expected output in the sector to contract 1.2% in 2012 and grow just 0.7% in 2013, a steep cut from its previous forecast of 1.5% growth as orders have slowed.

Total U.K. gross domestic product, meanwhile is expected to contract 0.1% this year and grow just 1.2% next.

"There is little positive news in these figures," said EEF Chief Executive, Terry Scuoler. "We've seen growth ebb away during the course of the year and many manufacturers are steeling themselves for a continuation of tough trading conditions in the next few quarters. The extent to which industry confidence has fallen since this year's budget makes it ever more urgent for the government to get to grips with growth and get behind companies seeking to invest and succeed in new export markets."

The U.K. economy posted a surprise 1% quarterly expansion in the third quarter, ending three straight quarters of contraction. However, despite some upbeat consumption figures in the past week, economists and some members of the Bank of England's monetary policy committee are bracing themselves for a weak gross domestic product figure in the fourth quarter of this year.

In a written annual statement, BOE member Martin Weale said that he would not be surprised if the economy failed to grow in the final three months of 2012.

"There has to be some risk that the recent economic stagnation will continue," Mr. Weale said.

Lloyds Bank chief economist Trevor Williams was equally pessimistic: "The latest results from our survey reaffirm that underlying economic growth remains broadly flat. The recent pick-up in inflation and an unwinding of Olympics-related spending suggest a somewhat weaker economic performance in the fourth quarter".

Indeed, it is likely that worries about export orders and the ability of firms to expand into emerging markets, to offset waning demand from the debt-troubled euro zone, are weighing on growth expectations.

"The reduction in exports is a particular concern and, whilst this mostly reflects the turmoil in the euro zone, it also highlights the scale of the challenge in growing exports to emerging markets to offset the downturn in much of Europe" said Tom Lawton, Head of Manufacturing at BDO, who compiled the survey with the EEF.

The survey also reported that manufacturers' employment plans slipped right back, with a balance of just +1 expecting to recruit new staff in the next three months, down from +16 in the previous survey.

The one bright spot in the survey, however, was the continued strength of investment intentions. But, given the drop in overall confidence and ongoing concerns over financing, it remains to be seen how many of those intentions become reality.

"Investment intentions seem to be defying gravity but the ongoing issues around access to capital and an unsupportive tax structure may yet have a serious impact on actual investment," Mr. Lawton said.

Write to Ilona Billington at ilona.billington@dowjones.com



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