Oil price threatens factory closures

Manufacturers overall were less gloomy about prospects

More factories are to shut as higher oil prices eat into profitability, economists have warned following after a report revealed the East Midland as the UK's manufacturing stronghold.

Profit margins remain extremely tight for a lot of manufacturers. More will go to the wall

Hann-Ju Ho, Business Strategies

Three quarters of plants in Yorkshire and Humberside worked below capacity over the summer, with orders down more than one third in the North East, the Confederation of British Industry latest Regional Trends survey said on Tuesday.

And while UK manufacturers overall were less gloomy than they were three months before, factories in the South East joined plants in the north in feeling distinctly less confident of prospects, the survey said.

The East Midlands was the only region where orders rose, the survey showed.

Three-pronged attack

Higher oil prices have only added to the pressures factories face from the strong pound and "intense" competition, said Hann-Ju Ho, senior economist at Business Strategies, which helped compile the report.

"Higher oil prices have fed through to unit costs for manufacturers in this survey," Mr Ho said.

"Profit margins remain extremely tight for a lot of manufacturers. More will go to the wall, meaning further job losses."

Investment worries

Looking further ahead, a reluctance to spend on new equipment and products risks wreaking worrying damage on the industry, Sudhir Junankar, the CBI's associate director of economics, said.

The concern for the longer term health of the manufacturing base is that investment intentions remain significantly negative

Sudhir Junankar, CBI

"The concern for the longer term health of the regional manufacturing base is that investment intentions remain significantly negative almost everywhere," he said.

The traditional manufacturing heartlands of the West Midlands, the North East and North West were the UK's lowest-ranked performers, the report said.

But a surprise turnaround came from exporters in the South West, where optimism over orders rose at its fastest rate since 1996.

Wealth gap

The report followed the release of official statistics highlighting a growing wealth gap between the south east of England and the rest of the UK

Household earnings

London: 123.4

South East: 113.9

East: 109.3

South West: 96.5

Scotland: 95.3

East Midlands: 94.2

North West: 92.2

Yorks & Humber: 91.7

West Midlands: 90.6

Wales: 84.9

North East: 84.5

Northern Ireland: 80.4

Figs 1998. UK average = 100

London, the South East and the east of England were the only regions where rises in household income outstripped the average rate for the UK, report by the Office for National Statistics revealed.

Homes in Scotland, Wales and the north east of England fell further behind the UK average, said the report, covering the period 1996-98.

"Income per head in London, the south east and the east [has] consistently remained above the UK average," the ONS said in its latest Regional household sector income report, which has been compiled since 1990.

"Income per head for all other regions [has] remained consistently below the UK average."

Richest and poorest

Northern Irish households, of which one quarter received pensions, dole cheques or other state benefits, were the UK's poorest, with total annual income averaging £11,179.

London homes received an average of £17,171 - one half more.

The gap in disposable income, which takes account of state tax, national insurance and council tax payments, was closer at 43%.

The report identified success in promoting employment in Scotland, with the country's workers making an ever greater contribution to household income.

The number of Welsh households, one in seven, which receive pensions reflects the popularity of the province as a retirement destination, the report said.