The UK manufacturing industry remains in recession and although it is expected to pick up next year,...
The UK manufacturing industry remains in recession and although it is expected to pick up next year, analysts are unsure as to when this will happen.
Andrew Milligan, head of global strategy at Standard Life, says: 'We have seen a downturn in the UK manufacturing industry all year of around 4%. This has been led by the high-tech component of the sector.'
Milligan explains the tech sector in the manufacturing industry has suffered the most because these stocks are cyclical in nature.
The manufacturing industry has faced problems due to excess stock and falling demand, says Milligan. The industry accounts for 20% of the total UK economy and it has continued to fall in the Chartered Institute of Purchasing and Supply survey for nine consecutive months. Stocks of raw materials and other parts used in other products have hit their lowest point since December 1992.
But Milligan thinks the first sign of stabilisation in the manufacturing industry is beginning to be seen. US manufacturing rose more than expected in November. This could signal some kind of pick up in global growth that is positive for the UK. Furthermore, UK consumer spending has been holding up. This could mean conditions are falling in place for inventory stocks to improve.
Milligan expects oil prices will fall in 2002, which will also be beneficial for the manufacturing industry as well as provide a good Christmas for retailers. In addition, technology companies that have been downgraded have been priced in the market. Low interest rates may encourage companies to increase leveraging and premiums will improve.
John Hatherly, head of global analysis at M&G, agrees that manufacturing is in recession. However, he does not see the outlook as favourable. The largest economies are in recession and although there will be some benefit from economic recovery, Hatherly thinks the extent this will help the manufacturing industry may be limited.
He says the manufacturing industry is more dependent on the investment cycle. There has been a large over-capacity in production and manufacturers are running down inventories of materials and parts rather than buying more. He says one of the key drivers for recovery will be the extent global exports pick up.
However, in November UK export orders declined to -50 from -44 and manufacturing companies such as RollsRoyce and Smiths Group are sacking staff to cut costs as orders from export markets fall.
Hatherly thinks the manufacturing industry will be one of the last areas to pick up when recovery occurs. He says recovery in the manufacturing industry will only follow after a rebound in consumer spending, but he is unsure when this may happen.
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