Manufacturing recession is over

The recession in manufacturing industry is officially over as figures published by the Confederation of British Industry (CBI) show the clearest evidence yet of recovery.

The CBI’s latest quarterly industrial trends shows the strongest growth in orders for seven years, the largest increase in output in eight years. Manufacturing confidence has also increased for the first time in eighteen months and firms predict strong growth over the coming quarter.

According to Ian McCafferty, CBI Chief Economic Adviser, "the manufacturing sector is at last on a path to recovery and firms clearly believe the worst is behind them.”

The manufacturing downturn has lasted for more than three years, with thousands of jobs lost. Official figures from the Office for National Statistics suggest that the sector has seen some 700,000 redundancies since 1998.

But the employers' organisation cautioned that the latest improvement is from an extremely low base following years of contraction in the troubled sector. Two thirds of firms continue to work below capacity, jobs are still being lost and competition continues to put pressure on prices.

Nevertheless, the survey showed that 30 per cent of manufacturers saw orders rise over the past three months, compared with 17 per cent who experienced a fall. This balance of plus 13 per cent is the largest increase in orders since October 1996 and marks the first rise in three years. Firms now expect the increase in total orders to be repeated over the coming quarter.

The global recovery led to a rapid rise in exports - the first for over seven years - with a positive balance of plus four per cent compared to minus 22 per cent just three months ago.

Output also increased for the first time in three years and companies were more positive about production for the next six months than they have been for over six years.

The survey shows the smallest fall in employment for almost three years. More job shedding is expected next quarter, but at a marginally slower rate.

Unsurprisingly, the upturn means that sentiment has improved rapidly. The balance of plus 17 per cent compares with minus seven per cent in the previous survey and minus 13 per cent in the July 2003 survey

Ian McCafferty added: “The recovery now depends on the positive expectations for the coming quarter being realised, so manufacturers will be hoping that the Bank of England continues its gradualist approach to raising interest rates.”