Blog: Dean BestSurveys highlight business gloom in UK

Dean Best | 4 January 2012

A couple of surveys published in the UK over the last 24 hours indicate the gloomy mood permeating parts of the country's economy.

Data announced yesterday (3 January) showed the UK manufacturing sector had its worst quarter in the final three months of 2011 since 2009.

Elsewhere, a survey said UK chief financial officers expected the country's economy to fall back into recession and remain "weak" for a "prolonged period".

The manufacturing data came from the Markit/CIPS purchasing managers index. The index increased in December to 49.6 from 47.7 the month before.

Output increased due to higher foreign demand (particularly, the index said, from China, Germany and Eastern Europe) and an effort to clear backlogs of work.

However, levels of new work fell for the six month in a row and despite the December score being higher than October and November, any score below 50 indicates a contraction in output.

What's more, the performance throughout the fourth quarter was the worst since the second quarter of 2009.

"Manufacturing will therefore likely be a drag on the economy in the closing months of the year," said Rob Dobson, senior economist at Markit and author of the index. "Looking ahead, manufacturers are currently relying heavily on backlogs of work to prop up production. This is only a temporary fix, and the trend in overall order books needs to improve if the sector is to avoid a protracted period of lacklustre performance."

The CFO survey from Deloitte said 87% of finance chiefs believe this is a "bad time" to put "additional risk" onto their companies' balance sheets. Deloitte also noted that 70% of CFOs expect corporate margins to decline in 2012.

There have, of course, been indications that the food sector has bucked the general manufacturing trend in the UK.

According to data from the Food and Drink Federation, 96% of respondents to a business confidence survey in the industry believed domestic sales would increase or remain the same in the fourth quarter of the year.

Data for the last three months is not yet available but the FDF says exports rose 12% in the first three quarters of 2011.

"There are fragile signs of growth centred on some very specific parts of the sector where demand remains strong, particularly consumer and capital goods, with some businesses even reporting record growth that defies the gloom," David Noble, CEO at the Chartered Institute of Purchasing & Supply said when the Markit index was announced.

That said, there are numerous indications that consumer spending will remain under pressure this year. David Cameron has noted the fears people have over jobs and paying the bills and insisted he knows how difficult it will be for the country this year. Those fears will continue to have an impact on spending, even on food - as we saw last year when volume sales of food fell in the UK.

And just look at the moves the UK's largest food retailers have already made to try to insist they can provide value to the nation's cash-strapped shoppers.

In the coming weeks, they will report their Christmas trading, starting with Morrisons next week. Their comments on consumer confidence will be keenly watched.



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