Manufacturing up in the UK, down in Europe

Two surveys have painted very different pictures about the state of manufacturing in the UK and Europe.

by Emma Haslett
Last Updated: 06 Nov 2012
The weather might be dreary and the markets might be up in arms – but there’s a bit of good news out there this morning, in the form of the CBI’s Industrial Trends Survey, which has suggested that things are looking up in the UK’s manufacturing sector. Apparently, a third of firms said the number of orders they’d received in August was ‘above normal’. In the eurozone, another survey has indicated the first contraction in the sector since September 2009. Which is one quandary even Germany might not be able to save Europe from…

The CBI’s figures might be positive – but it’s only just. According to the survey of 510 firms, the balance of manufacturers who say their orders are above normal is +1% - a dramatic improvement on the long-term average of -18%, but still not enough to convince us a recovery is definitely on the cards. And let’s not forget that (according to a different survey), the sector shrank in July. So presumably, it spent this month making up for lost time.

Nevertheless, the CBI pointed out that the growth in the sector was, in part, due to a drop in the cost of raw materials – a fall which, with any luck, is likely to continue over the next few months as investors get nervous about global prospects for growth. But market volatility is a double-edged sword: commodity prices might fall, but chances are that demand will also drop. Which could explain why manufacturers aren’t exactly at Simon Cowell on the confidence-o-meter: a survey by the CIPD last week showed that the number of firms planning to create jobs had dropped pretty dramatically.

As for the rest of Europe, the negative outlook is being driven by some of the largest economies. According to the survey by Markit, while total manufacturing output across the area dropped to 49.7 (anything below 50 means a contraction), arguably the most disappointing figure came from France, where output dropped to 49.3 – its first contraction since July 2009. And while Germany’s manufacturing sector (naturally) still managed to muster a bit of growth (output rose to 52), it clearly wasn’t good enough to prevent the score for the 17-country area as a whole from dropping.

What’s worrying is that, with markets in turmoil and yields on European bonds rising (the higher the yield, the higher the risk the country in question won’t be able to pay its debts), confidence in the eurozone is going to plummet. As we’ve seen in the UK, low confidence can have a catastrophic effect on demand, causing consumers to rein in their spending which, in turn, causes businesses to tighten their own purse strings – at which point, it becomes a self-fulfilling prophecy. Fingers crossed Europe’s leaders can find a way to stop it before it makes its way across the channel…

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