UK manufacturing outlook darkens: output, orders hit six-year low

The outlook for British manufacturing next year has darkened, with output and new orders deteriorating at rates not seen since 2009, according to an industry survey on Monday that warned of slowing growth both at home and abroad. Manufacturing organisation EEF said its quarterly balances for new orders and output fell to their lowest levels since the third quarter of 2009, when Britain's economy had just exited its deepest recession in over 70 years.
Britain had the fastest-growing major world economy last year and is likely to be at the head of the pack again this year. But it has relied heavily on domestically focused services for growth, frustrating hopes for a more export-led recovery. The EEF survey, which is sponsored by law firm DLA Piper, raised scant hope of a manufacturing recovery in 2016, after the sector failed to contribute to British economic growth in the first three quarters of this year.
"Concerns about world trade growth and the strength of demand from both developed and emerging markets have become more prominent ... since our last report," said the EEF's chief economist, Lee Hopley. "Closer to home, the domestic market is also looking considerably less supportive than has been the case in recent years," she said. Low oil prices have hurt manufacturers that supply and service the sector, the report said. Official figures for manufacturing are due on Tuesday. They are expected to show output stagnated in October.
The downturn in manufacturing had taken its toll on plans for investment and employment, the EEF said. Balances for both measures dipped below zero for the first time since early 2010. But elsewhere in the British economy, the pace of hiring remains robust, according to a separate survey from the Recruitment and Employment Confederation. Permanent staff placements increased at the strongest rate in seven months during November. Starting salaries continued to increase strongly, though by less than in October.
"November saw a further tightening of labour market conditions, with few sectors remaining immune from the effects of ongoing skills shortages," said Bernard Brown, a partner at accountants KPMG, who support the survey. The REC survey has regularly pointed to stronger wage growth than has shown up in official data. Bank of England policymakers say it is still too low to help raise inflation back to target from its current record low. The policymakers meet this week for their monthly monetary policy decision. Economists polled by Reuters expect no change this time, but they do expect interest rates to rise around the second quarter of next year.