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Monday, 6 August, 2001, 13:14 GMT 14:14 UK
UK manufacturing in recession
Manufacturing output
The UK's manufacturing sector is officially in recession.

Manufacturing output for the three months to June fell by 2% on the previous three months and 1.3% year-on-year, according to figures from the Office for National Statistics.


If people out there start to hear the word recession in the context of manufacturing, they might start to spend a little less

Jenny Scott, BBC Business and Economics Correspondent
It is the second successive quarter when manufacturing output has fallen, the accepted definition of a recession.

The UK economy as a whole is not yet in recession, largely because of the continued buoyancy of service sector firms such as shops and banks.

But there have been signs that other sectors of the economy are following manufacturers into decline.

Manufacturers been hit hard by a slowdown in the world economy and the high value of sterling.

Last week the Bank of England shaved 0.25% from interest rates in an attempt to inject some life into the sector.

Tough times

Reacting to Monday's figures, Ian Fletcher, chief economist at the British Chambers of Commerce said: "This is technical confirmation of what has been apparent to business for some time.


Our manufacturers are caught between a rock and a hard place, with the pain of the global slowdown, accentuated by an uncompetitive euro exchange rate

Ian Fletcher, British Manufacturers
"What is particularly alarming is the breadth of impact across the sector, with both new and old industries now facing tough times.

"Our manufacturers are caught between a rock and a hard place, with the pain of the global slowdown, accentuated by an uncompetitive euro exchange rate.

"Government must ensure it does all it can to ease the sector's load over the forthcoming months, to mitigate the inevitable impact on jobs and investment."

Confidence fears

Manufacturing accounts for about 20% of Britain's economy, with about 4 million people employed in the sector.


It is clear that the Bank of England Monetary Policy Committee must have had sight of this data last week, which is why they cut interest rates

Vincent Cable, Lib Dem trade spokesman
The BBC's Business and Economics Correspondent Jenny Scott said: "In the last year alone, the (manufacturing) sector has shed 100,000 jobs.

"These are people who go out and buy goods like everybody else and the worry is that they will start to rein back on their spending."

The other worry, she said, was that Monday's figures would have an impact on consumer confidence.

"Confidence is a fragile thing. If people out there start to hear the word recession in the context of manufacturing, they might start to spend a little less."

Figures last week from the Chartered Institute of Purchasing and Supply (CIPS) suggested the slowdown in manufacturing had already started to spread to the service sector.

Bright spots

But it was not all bad news for Britain's manufacturers.

Although the quarter-on-quarter figures were the worst since May 1991, the monthly figures showed output actually increased by 0.3% in June, compared to the previous month, according to the ONS survey.

This was largely due to a 0.8% increase in optical and electrical equipment.

Computer output alone grew by 4.5% on the month, according to the ONS figures.

However, there was a 7.9% decrease in electrical and optical equipment over the quarter, which contributed two thirds of the 2% decline.

Overall, there were falls in quarterly output across 11 of manufacturing's 13 subsectors.

ONS said it had revised its estimate of trend growth in manufacturing down to -5% from -4% and its estimate of trend growth in industrial production down to -3.5% from -3%.

'Lethal combination'

Reacting to Monday's figures, Liberal Democrat shadow trade secretary Vincent Cable said: "We could well be heading for one of the worst post-war manufacturing recessions, spreading to related service industries.

"In Britain we have a lethal combination of manufacturing being hit by a global slowdown together with a seriously over-valued currency, mainly in relation to European currencies but also with Asian and Emerging markets.

"It is clear that the Bank of England Monetary Policy Committee must have had sight of this data last week, which is why they cut interest rates.

But small interest cuts without some indication of where the Government see the pound moving is unlikely to stave off manufacturing recession and large scale job losses in the winter."

 WATCH/LISTEN
 ON THIS STORY
The BBC's Jeff Randall
"The shape of Britain's economy has changed dramatically"
Barry Payne, Businessman
"Our European partners find subtle ways of supporting their manufacturing industries"
Ian Brinkley, TUC Senior Economist
"We would like the government to do a bit more for the manufacturing sector"
See also:

06 Aug 01 | Business
Q&A: The manufacturing recession
03 Aug 01 | Business
Gloom spreads to UK service sector
27 Jul 01 | Business
UK economy stalls
30 Jul 01 | Business
Consumer credit boom continues
02 Aug 01 | Business
US manufacturing slumps further
02 Aug 01 | Business
US factories struggle for trade
30 Jul 01 | Business
Profit warnings set to increase
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