World Economy Woes Hitting UK Manufacturing Exports
21st November 2014
A weaker outlook for the global economy is hitting UK exports and slowing the recovery in Britain's manufacturing sector, the CBI has warned.
A sluggish eurozone economy and slowing growth in China has weighed on UK export order books in November as foreign demand for UK goods wanes, the lobby group said.
Of the firms surveyed, 17% said their export order books were above normal levels, while 34% said they were below. That gave a balance of -17%, an improvement on October's -23% but continuing the run of negative results. Fifteen of the 18 manufacturing sub-sectors reported below-average export orders, with the largest drag coming from mechanical engineering, where export orders were at a two-year low.
The CBI said sluggish export demand meant recovery in the UK manufacturing sector had slowed since the beginning of the year.
"Overall manufacturing output remains quite strong, although growth is expected to ease against the backdrop of continuing global risks," said Rain Newton-Smith, the CBI's director for economics.
"Manufacturers are particularly struggling in export markets due to a challenging global economic climate, including sluggish eurozone growth, and also slowing emerging markets, such as China."
Total order books were in better shape, reflecting domestic demand for British goods, with the balance rising to +3% in November from -6% in October.
Manufacturing output over the last three months also improved according to the CBI's latest industrial trends survey, rising to +15% from a 12-month low of +11% in October.
Manufacturers were feeling less optimistic in November about the three months ahead, with a balance of +12% of firms predicting a rise in output, the weakest in 13 months.
Paul Hollingsworth, UK economist at Capital Economics, said: "November's CBI Industrial Trends Survey provided some tentative encouraging signs that the UK's manufacturing recovery is maintaining its momentum despite the drag from weak overseas demand and the strength of sterling.
"That said, it is too soon to proclaim this the turning point for the manufacturing sector. The onus is likely to remain on the dominant services sector to keep the overall economic recovery chugging along."
A separate report from the Office for National Statistics showed spending on research and development (R&D) within UK businesses was £18.4bn in 2013, 8% higher than 2012.
More than half of the amount, 54%, was spent by foreign-owned businesses in the UK.
The number of people employed in R&D roles by UK businesses increased by 11% to 178,000 on a full-time equivalents basis, which was the largest annual increase since 1985.
EEF, the manufacturing trade body, said business spending on R&D had now returned to pre-crisis levels.
"Manufacturers have continued to prioritise investment in innovation over a challenging few years, but though we're back to where we were, we're not yet where we want to be. R&D expenditure remains low compared with international levels," said Lee Hopley, EEF's chief economist.
Business spending on R&D was 1.1% of gross domestic product in 2013, lower than the 1.6% average for member countries of the Organisation for Economic Co-operation and Development according to EEF.
Civil R&D spending in the UK increased by 8% in 2013 to £16.7bn, while defence R&D spending increased by 7% to £1.7bn.
Pharmaceutical companies spent the most on R&D in 2013, at £4.1bn, followed by the car industry at £2.1bn and computer programming companies at £2bn.
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