Export confidence hits three-year low

Manufacturers are continuing to feel the pinch

British industry's optimism about export prospects has fallen to its lowest level for nearly three years, according to the Confederation of British Industry (CBI).

The CBI's quarterly industrial trends survey showed a decline in domestic and export orders, weakening investment intentions and increased job losses.

Overall business confidence fell again amid fears of a global downturn in demand, although the rate of decline was less than seen three months ago.

The survey appears to confirm official data on industrial output which shows the sector on the brink of recession.

Mass lay-offs

The percentage of firms working at below capacity had hit its highest level since January 1993, when the British economy was emerging from its worst recession since the Second World War.

The problems have been particularly acute in the technology and telecoms sector, where plunging profits have led to mass lay-offs.

Telecom giants Lucent and Marconi, electrical engineering group ABB and information provider Reuters are among the companies that have announced large-scale redundancies in the past month.

The FTSE 100 index of leading shares fell to a 33-month low in late Wednesday morning trade amid fears of further bad news to come.

Foot-and-mouth

According to the CBI quarterly survey, the balance of exporters' optimism versus pessimism about prospects for the year fell to -25% in July, down from -16% in April and the worst performance since October 1998.

A global economic slowdown makes it hard for British firms to grow their businesses

The CBI's overall confidence balance remained poor at -22% but that was up slightly from the -29% figure recorded three months ago which was the worst since January 1999.

The CBI said confidence had been worse in April due to the foot-and-mouth disease outbreak sweeping the countryside.

The volume of total orders expected over the coming four months was up slightly, with the CBI reporting a balance of +1% from -4% last time.

The export orders balance, however, fell to -20% from -15% three months ago.

Next four months

Vauxhall chief Nick Reilly, chairman of the CBI's economic affairs committee, said: "The economic slowdown in the US and Germany is impacting on UK manufacturers' ability to export.

We still believe the difficult world economic backdrop is sufficient to justify a quarter-point cut in interest rates

Nick Reilly, CBI economic affairs committee

"Prospects for the next four months include more job losses and the risk of a further decline in exports.

"With domestic prices falling more than unit costs over the next four months, we expect profit margins to be under pressure.

"Having allowed for continued robust growth in consumer spending, we still believe the difficult world economic backdrop is sufficient to justify a quarter-point cut in interest rates," he added.

The survey showed the absence of inflationary pressure in the manufacturing sector.

Average prices fell at their sharpest rate since last October and there was no expectation among manufacturers that they would be able to raise their prices in the next four months.

It also showed intentions to invest in plant and machinery over the year ahead fell to their lowest level since last October.