By Daniel Hunter

Over the past quarter the UK’s manufacturers have seen some of the toughest trading conditions since the end of the recession, according to a major survey released today by EEF, the manufacturers’ organisation and business advisers BDO LLP.

In response to EEF & BDO’s previous survey (6 June 2012) manufacturers had anticipated some softening in output and orders, but today’s survey showed a more marked weakening than expected across a range of indicators. The balance of responses on output over the past three months fell to its lowest level since 2009q4 and the orders balance was the weakest since 2010q1.

The survey clearly indicates that slower demand both at home and overseas is hitting order books, with responses on UK orders turning negative for the first time in ten quarters. And further analysis of our survey results suggests that the drop in export orders is not limited to sluggish demand in crisis-hit eurozone economies.

“The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey," Commenting, EEF Chief Economist, Ms Lee Hopley, said.

"Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to UK manufacturers and also our economy’s reliance on exports as a source of growth.

“However, some positive news can be taken from the improvement in the short term outlook and the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term.

“It’s encouraging to see that companies are not planning for a further deterioration in conditions as we head into the final months of the year. But, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”

Tom Lawton, Head of Manufacturing at BDO LLP, said: “The results of the survey paint a dark picture with weakening markets across the board. Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter. With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.

“However, it is not all bad news. Larger companies that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent. All of this in the face of worsening market conditions. This indicates that manufacturers have learnt the mistakes of the past, are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”

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