No respite for manufacturing sector as the fragility remains

The closely-watched purchasing managers’ index painted a picture of weak demand and continuing job losses.

It revealed that the level of incoming business was down for the third month in a row, although the rate of decline slowed and the prices paid by manufacturers fell at the fastest rate in three years, giving some relief to company margins.

While not as bad as feared, the survey pointed to a second successive month of overall contraction and could persuade the Bank of England to unleash another round of quantitative easing as the UK struggles to emerge from its second recession in four years.

Economist Rob Dobson, author of the PMI report, said: “Manufacturing is seeing lots of volatility at the moment, due to factors such as the Jubilee holidays making it very difficult to see what the underlying trend is.

“On one hand, the increase in production in June provides hope that the wheels have not fallen off the manufacturing economy and in particular we are seeing some resilience from the consumer goods sector, which corresponds with the recent brighter news on domestic retail sales in the second quarter.

“However, there is no denying that the second quarter as a whole is looking weaker than the first quarter, suggesting manufacturing output may have contracted by at least 0.5 per cent and therefore acting as a substantial drag on the economy for the fourth successive quarter.”

David Noble, chief executive of the Chartered Institute of Purchasing and Supply, said the sector is playing catch up after the dramatic falls in activity recorded in May.

“The effects of the eurozone crisis and global economic slowdown are making it a tricky time to build on exports, but there were a couple of brighter spots which helped ease the decline,” he said.

“The significant reduction of input prices was a silver lining for the sector, as businesses tried to claw back some of the margins lost in previous months.

“Businesses have also responded to weak levels of new orders by working through backlogs of work, leading to an overall growth in output.”

He voiced concerns about the space capacity reported by manufacturers, which he warned could lead to job losses in the coming months unless there is a pick-up in orders.

“As ever, it remains a long and difficult road ahead,” said Mr Noble.

Andy Tuscher, Yorkshire director at manufacturers’ organisation the EEF, said conditions appear to have stabilised, but added that “extremely weak” indicators from Europe highlight the difficulties faced by members. “It does look as though there are still significant risks remaining to recovery gaining momentum as we go into the second half of the year,” he added.

Howard Archer, chief UK and European economist at IHS Global Insight, said UK manufacturers face a very challenging domestic and international environment, with domestic demand handicapped by the squeeze on consumer spending, while weakness in the eurozone is limiting overall foreign demand for UK-made goods.

But in the manufacturing heartland of South Yorkshire, company directors are “relatively positive and upbeat”, according to the Company of Cutlers.

George Kilburn, clerk at the company, said: “There’s no doom and gloom here. Those at the high end are doing well.

“In this part of the world, it is generally components for oil and gas and aerospace and there is a demand for that.

“People are prepared to pay a fair price for high quality products.

“Other areas – stack ’em high, sell ’em cheap, imports from China – are different.”

But Weir Group provides £5m fillip

WEIR Group, the FTSE-100 engineering giant, plans to invest £5m to expand its West Yorkshire foundry in a vote of confidence in the UK’s manufacturing sector.

The group makes pumps, valves and impellers in Todmorden for an international customer base in countries as far flung as Chile, Finland and Canada.

Its equipment is used to push slurry through pipes and is essential in mining and minerals processing.

Customers include BHP Billiton, Rio Tinto and Anglo American.

Weir last night won planning permission to expand capacity, which would take output to 13,000 tonnes a year from 2,500.

The project starts in six weeks and should be complete by the end of the year and fully operational in January.

Kevin Spencer, regional managing director at Weir Minerals Europe, told the Yorkshire Post: “The expansion will mean extra jobs at our Todmorden plant and will enable us to provide more products for important global markets such as the North American oil sands, as well as to manufacture higher volumes of equipment from our growing portfolio of products.”

The foundry has been operating since 1893. Weir acquired the site in 1999 and considered closing it in 2005. Led by Mr Spencer, the foundry introduced ‘lean’ manufacturing principles inspired by Honda.

Today, it employs around 420 staff and is headquarters for the group’s minerals division for Europe, the Middle East and the former Soviet Union states.

The group says its minerals division aims to double operating profits by 2016. It has a number of future growth opportunities and will benefit from strong demand.