WHILE new figures show that the UK's manufacturing sector contracted for the first time in two years last month, North East business leaders believe the sector is still growing in this region on the back of strong export sales.
Concerns that the tentative economic recovery was weakening were fuelled yesterday by the key Markit Purchasing Manager Index, which showed that the manufacturing industry shrank slightly in July. The report also showed that new orders fell for the third month in a row and at the fastest rate since May 2009, reflecting low domestic demand.
The figures dealt a further blow to hopes of third-quarter economic growth after official figures revealed a slowdown in GDP growth from 0.5% in the first quarter to 0.2% between April and June. Manufacturing had previously been showing the strongest signs of recovery of any sector.
Howard Archer, chief UK and European economist at IHS Global Insight, said Markit had published a “pretty horrible survey“.
He said: “It is evident that manufacturers are now finding life really challenging as domestic demand is held back by serious headwinds, notably including tightening fiscal policy and a major squeeze on consumers, while recent slower global growth is limiting export orders.”
However, North East business leaders in this region say the sector is still strong because companies are finding bigger new markets overseas.
The North East saw the value of its exports rise to a record high this year with growth at twice the average UK rate. The value of exports in the first quarter of 2011 jumped to £3.4bn, which took the total for the 12 months to the end of March to £12.78bn – nearly 30% higher than a year earlier and double the 17.7% average. And the otherwise gloomy Markit survey recorded export growth for the 10th month in a row.
Tony Sarginson, of manufacturing organisation EEF, said: “I would be very surprised if manufacturers here were seeing the same declines as has been reported by the industry as a whole. The fact that many of our manufacturers have built upon their overseas sales in regions such as the Far East has helped them to continue growing over recent months, and I haven’t seen anything to suggest that this has slowed in recent months.
“Also, the fact that many of our manufactures are also business to business companies, rather than selling straight to retail customers has also afforded them protection. Whether this can last is another question.”
The most recent quarterly survey from the CBI revealed that manufacturers were less optimistic than three months ago – the first drop in sentiment since July 2009.
James Ramsbotham, chief executive of the North East Chamber of Commerce, said: “While there is certainly a sense of reduced confidence in the manufacturing sector overall – which is not being helped by the US Government’s handling of its debt – I would be surprised if North East firms were seeing those kind of declines.
“While plans such as those by SSI to create around 1,000 jobs at the Teesside Cast Products plant in Redcar and plans by Hitachi to build a train factory in County Durham will take time, we are seeing a much more positive picture here in the North East than the national figures would suggest.”