Manufacturing can expect a slowdown too
Among all the weakness in the UK economy, manufacturing industry is holding up well. In a world that has run out of cash, manufacturers’ profits mean they have positive cashflow. Most companies are not suffering seriously from the credit crunch therefore: most are repaying debt rather than asking banks for more.
With the oil price having reached nearly $100 a barrel and the pound so high, the sector’s optimism may seem surprising. Unfortunately, manufacturing is only one-sixth of the economy nowadays so the sector’s optimism will not save the country. Indeed, the gloom in the rest of the economy will sooner or later infect manufacturing too.
Read between the lines of the latest EEF survey of manufacturers and the pessimistic signs are there. Yes, most companies still plan to increase capital expenditure, but the proportion planning a rise has fallen. Yes, most companies expect orders to grow, but not so many as in previous surveys. Export sales growth is expected to be better than domestic orders. Even 28 per cent admitted to a modest impact from the credit crunch.
Manufacturing is still faring better than the service sector, but if workers in service companies stop buying things, there is no point making them. Manufacturers haven’t caused the slowdown but they would be wise to plan for it.
