UK manufacturing: green shoots despite slower output

The food and drink sector, which is the single largest manufacturing sector in the UK with a turnover of £67.6bn, accounted for around 15 per cent of the total manufacturing sector last year. The industry has seen a fair amount of consolidation in 2004, notably in the dairy sector.

Overall, key indicators such as overall business and export optimism, capacity utilisation, new order volumes and output are generally improving steadily in many regions, notably Yorkshire & the Humber, the North West, Scotland, Wales, the East Midlands and the South West, suggesting that the recovery in UK manufacturing is still on track.

"Following a strong six months, the UK's manufacturing recovery has moderated,"​ said Doug Godden, CBI head of economic analysis. "But the regional pattern supports the view that this is not the beginning of a reversal in the sector's fortunes."​

Significantly, in three of these regions there is evidence that improving output and confidence are leading to better employment trends. In Wales, Yorkshire & the Humber and the South West - the balance of respondents reported an increase in employment, reversing three years of decline, and in Scotland employment stabilised after almost four years of contraction.

In contrast to the improving picture in most regions, confidence among West Midlands' manufacturers remains depressed. Trends in orders and output signal that the recovery in this part of the country is lagging that elsewhere. In addition this region has been particularly hard hit by the steep rise in the cost of metals.

In the North East, some of April's significant gains in orders and output were taken back, weakening confidence. However, a modest rise in output is expected over the coming quarter.

The West Midlands and the North East along with Northern Ireland are also gloomy regarding total orders in the next three months. Elsewhere, however, there are encouraging indications of improving prospects for manufacturing with very positive expectations about total orders in Yorkshire & the Humber, the East Midlands and the South West. All other regions expect a moderate increase in orders.

Export optimism is buoyant in several regions, notably the North West and Scotland, with Yorkshire & the Humber, the South West and the South East & London also reporting increasing confidence about export prospects.

The survey suggests that employment contraction in the next few months will continue but at a much less rapid pace than seen over the past three years. Estimates based on the survey results, suggest a further 14,000 jobs will be lost to manufacturing in the current quarter, but job cuts at this pace represents less than half the rate seen during 2003.

The West Midlands is set to bear the largest absolute fall (5,000) and also the largest decrease in percentage terms (1.2 per cent).

"The overall results portray a rather more muted picture than emerged in the previous two surveys,​ said Peter Gutmann of Experian.

"However, this is largely due to a sharp reversal in the North East and the persistent gloom in the West Midlands. Elsewhere there are widespread signs that manufacturing's recovery is on course and is broadening to include the South East, which has so far lagged behind the national recovery.​

"Regions in this part of the country show an encouraging upturn in orders and output, a marked fall in the proportion of firms working below capacity, and a significant deceleration in employment contraction."​

The results of the CBI/Experian Regional Trends were taken from the 731 replies to the CBI's Quarterly Industrial Trends Survey received between 24 June and 14 July.

Food and drink remains the biggest spending category in the UK. In 2003 consumer expenditure on food and drink came to £146.2 billion, representing 21.0 per cent of UK national consumer's expenditure. Consumer food prices rose by 1.2 per cent between 2002 and 2003.