Confidence of British manufacturers plummets to 28-year low
The Confederation of British Industry’s (CBI) Industrial Trends survey has revealed further bad news for the economy after it established over 60,000 manufacturing jobs could go before the end of 2008.
The CBI said its business situation index fell to -60 from -40 in July, which represents the lowest reading since July 1980.
The tightening of lending criteria is having a significant impact on the prospects for manufacturers’ businesses.
As many firms encounter lending difficulties, cost-cutting measures are in full swing as manufacturers plan to reduce spending on machinery and buildings over the next 12 months. Around 9% of companies said output was likely to be restricted due to credit or finance difficulties over the next few months.
The survey also found that in the last three months, 16% of businesses had experienced an increase in new orders, however, 46% said they had fallen.
There was also a fall in demand for UK-made goods which will undoubtedly lead to job losses. The CBI predicts that 23,000 manufacturing jobs will disappear in the third quarter and that this number will rise to 42,000 in the final quarter of 2008.
Howard Archer, an economist at Global Insight, was shocked by the figures and said this will add to fears that the UK could be in for a prolonged and deep recession.
Ian McCafferty, the CBI’s chief economic adviser, said the survey was carried out during a period of economic turbulence, so it is not surprising that confidence has taken a battering.
However, Mr McCafferty hopes that the recent half a percentage cut in interest rates and the recapitalisation of banks would prevent a further credit squeeze over the winter months.
In the meantime, a forecast published recently by the Ernst & Young Item Club claims that Britain is now in a recession that will last for 12 months, with only a weak recovery in 2010.
Peter Spencer, the chief economist at Ernst & Young, said the economy fell sharply in the previous quarter and will shrink for three more quarters before bottoming out in the latter half of 2009.