A brief report on the UK economy

Mon 13 Jun 2011

The rain cloud on the horizon for UK manufacturing however is domestic demand. Obviously still fragile, not trusting that low interest rates will stay for much longer and expecting to feel the pinch over the next 12 months from the austerity programme, UK households could be holding UK manufacturing back.

The Bank of England's April Agents' Summary stated that "there were reports from suppliers of consumer goods of a slowing in the rate of growth of output, with some unplanned build up of stocks as a result...Across the manufacturing sector, despite rising output and fairly strong order books, contacts remained uncertain about the outlook for growth. Some considered their own positive experience unrepresentative or were down beat because of pressure on household spending power."And now this is borne out by the May Market/CIPS UK Manufacturing PMI which has fallen to a 20 month low. Production and new orders fell for the first time since mid 2009 with consumer goods and smaller manufacturers hardest hit."

Another unknown to throw into this mix is the effect of the Japanese earthquake and tsunami. Toyota shut down 5 European plants in late April and early May, including two in the UK, albeit for short periods. It also reports production at 50% of capacity in Japan and 40% elsewhere, with normal levels not expected until November or December. Nissan also shut down its Sunderland plant for three days and Honda is reported to have halved production in the UK. All this will have a knock on effect on local tier 1, tier 2 and lowlier suppliers.

Automotive, with its Just In Time supply chain, is particularly susceptible to disruptions in the timing of the supply of components and parts. Japan is still one of the largest exporters of machine tools to the world economy though and it remains to be seen what the effect of a lack of machine tool parts could have on manufacturing.

A number of sizeable manufacturing cases this quarter. In food and automotive, the cause was loss of contracts rather than lender led appointments. We have also seen a significant number of retail jobs with jewellery, musical instruments, activity apparel and flower wholesaling featuring, all discretionary rather than essential household expenditure.

GoIndustry Dovebid's experience in insolvency in this quarter shows a number of sizeable manufacturing cases, in food and automotive. The cause was loss of customer contracts rather than Lender led appointments

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