Page last updated at 11:52 GMT, Monday, 2 March 2009

Factory downturn 'accelerating'

The slowdown has spread to many parts of the economy

Manufacturers in the UK cut jobs and output at a record pace in February, according to the latest Purchasing Managers' Index (PMI).

The PMI showed employment and output levels at their lowest since the survey began in 1992.

The index fell to 34.7 last month from 35.8 in January. Analysts had forecast a more modest fall to just 35.0.

Separately, a report from industry body the EEF said that 140,000 manufacturing jobs could be lost this year.

The EEF's survey found production and orders had hit record lows during the first two months of 2009.

'Deeply in recession'

The PMI index is compiled by the Chartered Institute of Purchasing and Supply and the data provider Markit.

Few firms expect things to get better in the near future but they are also focusing on making sure they are ready to take advantage of the eventual recovery
Steve Radley, EEF chief economist

Any figure below 50 indicate a contraction, and February's results means the sector has now contracted for 10 months in a row.

"The labour market exhibited exceptional weakness during the month, with the PMI survey consistent with around 30,000 jobs being lost per month," said Markit senior economist Rob Dobson.

Philip Shaw, chief economist at Investec, said: "It shows that the UK manufacturing sector remains deeply in recession and that's likely to remain the case despite the competitiveness of sterling."

EEF survey

The EEF survey, which canvassed 782 firms, forecast that manufacturing output would fall by 8.6% in 2009, with a growth of just 0.2% in 2010.

It said there was "simply no hiding the fact these figures make grim reading".

However, a separate survey of 11,000 firms by BDO Stoy Hayward reports a slight rise in short- and mid-term confidence as many accept the realities of the recession.

BDO Stoy Hayward said the growth in optimism suggested action was being taken to adapt to the economic climate, although it predicted that 320,000 more jobs would go across the UK in the next three months alone as firms cut back.

Peter Hemington, a partner at the firm, said: "Companies are now adapting their business models for an uncertain future."

The EEF's chief economist, Steve Radley, said demand from both domestic and international markets had shown steep declines, making the past three months "extremely difficult for manufacturers".

"Few firms expect things to get better in the near future but they are also focusing on making sure they are ready to take advantage of the eventual recovery," he said.

As well as a decline in manufacturing output, engineering output is set to shrink by 10.9% this year and rise by 0.9% next year, the EEF added.

Cars parked

Of the firms surveyed, 39% more said output had fallen than those who said it had risen or remained unchanged (a balance of -39%), and 54% more said that orders had dropped.

Our orders are down significantly - prices and margins are being squeezed
Dr Henry Shirman, MTL Group

The picture was bleaker in some regions, with firms in the West Midlands posting the weakest balance of output, at -63%, from -31% in the final three months of 2009.

The continuing decline was linked heavily to the weakening auto industry, the EEF said.

The East Midlands and eastern England also reported sharp falls in production levels.

The EEF said that firms in the motor vehicle sector had seen their output and orders balances fall to -91% and -81% respectively.

The recession has slowed demand for new vehicles as consumers look to rein in larger purchases - prompting some factories to shorten their working week or to enforce a temporary shutdown.

This has had a knock-on effect with firms in the metal sector who supply car makers, the EEF said.

The findings chime with a separate survey by PricewaterhouseCoopers which said that the metal products sector was the sector most likely to suffer in the recession.

Financial services and the hotels and restaurants sector were also suffering and set for tricky times, said the PwC report, which added that the pharmaceuticals, food retailing and utilities sectors were the least vulnerable.

Job prospects

The EEF said that "as might be expected", the economic slowdown was having a marked effect on companies' plans for investment and employment.

Its study found that 37% more firms were likely to have a smaller workforce than larger or unchanged staff levels.

Meanwhile 45% more intended to cut back on investment than to hold steady or step-up how much they put into the business.

Mr Radley said the government should "consider all possible avenues to help companies deliver alternatives to redundancy", supporting firms to hang on to skilled workers they will need when the upturn begins.

Dr Henry Shirman, managing director of the steel sheet manufacturer MTL Group, agreed with the findings of the report.

"Our orders are down significantly - prices and margins are being squeezed," he said.

However, he said one bright spot was the weak value of sterling.

"The weak pound is helping in Europe and we are developing some customers in mainland Europe and some in North Africa."

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