Turbulent times for manufacturing output

Fresh evidence of the UK’s declining jobs market has emerged in a report showing that the demand for permanent and temporary workers fell last month. However, the engineering sector saw a growth in both permanent and temporary vacancies in May, out-performing other industries, according to a study by KPMG and the Recruitment and Employment Confederation.

The slowdown in the UK jobs market was caused by employers becoming increasingly cautious amid the poor economic outlook and the euro-zone troubles, making companies think twice about taking on new workers, the monthly report said. It also showed that staff worked longer hours in the first quarter of the year than in the final three months of 2011, but judging by recent economic figures showing that the UK is in a double-dip recession, a spokesman warned that “real productivity growth still remains elusive”.

However, companies are demonstrating a “remarkable resilience” given the state of the economy, according to a separate study by Manpower, the recruitment firm. This survey of 2,100 employers showed a modest increase in hiring intentions across the UK, but most of the positive outlook centred in southern UK regions, with the North lagging behind.

Meanwhile, there was a surprise fall in UK manufacturing output in April, official data has shown. Factory output fell 0.7% from March, according to the Office for National Statistics (ONS), after rising 0.9% a month earlier.
The Ernst & Young Item Club (an economic forecasting group) said this was a "serious cause for concern”. Nida Ali, one of its economic advisers, added: “The figures suggest that the manufacturing sector will be a drag on growth in the second quarter, which is already expected to be disappointing due to the extra bank holiday in June. The outlook is also dominated by down-side risks: UK manufacturers are at the mercy of the on-going euro-zone crisis and are highly vulnerable to a further slowdown in exports.”

Philip Shaw, an analyst at asset management group Investec, said: “The manufacturing figures are very disappointing. They highlight the pressure that the sector is under, given the gravity
of the debt crisis in the euro area, but also the lack of confidence at home.”

Lee Hopley, chief economist at the EEF, said April’s figure was “disappointing”. She added: “Despite the fall coming on the back of a large ‘up-tick’ in March, this still leaves production hovering around levels seen at the end of 2010.”

David Kern, chief economist at the British Chambers of Commerce, said the fall in manufacturing output was “not surprising. The imme-diate outlook is difficult. Our most recent forecast has indicated nil growth in manufacturing output this year and, on the basis of this figure, there is a risk that the sector will record a small decline in 2012.”

The BCC wants the Bank of England to announce another round of ‘quantitative easing’ to help boost economic growth (QE is the policy of injecting new money into the banking system with the aim of boosting lending levels).
Earlier this month, the Bank of England’s Monetary Policy Committee decided not to expand the QE programme; it also kept interest rates on hold at 0.5%.