Economic Update 28th September 2011

UK manufacturing slow, but moving

Order books of manufacturing firms slipped back in September, but despite this UK manufacturers think that production will continue to grow over the next three months. This finding comes from a survey of 470 manufacturers responding to the CBI’s latest monthly Industrial Trends Survey.

Ian McCafferty, CBI Chief Economic Adviser, said, “UK manufacturers report some slackening in demand this month, following the volatility in financial markets and the slowdown in growth in our major trading partners. As a result, firms now say stock levels are high relative to expected demand.

Nevertheless, UK manufacturers remain optimistic that production will continue to grow over the coming three months.”

CBI Press release

Sharp drop in SME profits

Around a quarter of small and medium sized businesses have seen a 50% fall in their pre-tax profits according to research based on nearly 20,000 accounts filed at Companies House  in 2010 analysed by accountants Baker Tilly.

A tenth of the companies saw profits fall by 30%, while further quarter saw profits go down by 10%.

David Hudson of Baker Tilley’s insolvency team told the Financial Times, “We have been living in a somewhat artificial economy over recent months where stability has been seen to be settling.  However, the cracks are now appearing as inflation rates and shifts in the market are challenging this fragile state.”

Low growth blow on deficit reduction

Chancellor George Osborne’s target of balancing the UK’s  budget by 2015 is likely to be missed if the economy continues to stagnate, according to the calculations of financial firm Pimco.

With little growth in the economy the Treasury will find it difficult to collect all the tax it needs to pay down the deficit, and so Pimco predict that the budget is more likely to reach balance in 2016 or later.

This will be too late for the next General Election which is scheduled for May 2015, unless of course the Coalition collapses before then.

Mike Amey of Pimco told the Telegraph, "We don't believe that UK real GDP is going to average 2.75pc in 2012 to 2015. We think if things work out reasonably well it will be more like 2pc, which is going to make it quite hard to get the unemployment rate down.

Realistically we think they are going to push the deficit closure out by a year or two...... It is going to be very hard for [the Government] not to do anything, simply because GDP is quite weak. We think there will be a tinkering with plan A, rather than a reversal."

http://www.telegraph.co.uk/finance/financialcrisis/8792511/Chancellor-George-Osborne-to-miss-deficit-reduction-target-says-Pimco-managing-director-Mike-Amey.html

Eurozone private sector shrinks

September saw contraction of the eurozone’s private sector for the first time in two years.  Manufacturing and services both shrank slightly, with manufacturing output falling for the second month in a row. New orders declined for the second month running, falling at the fastest rate since July 2009.

The analysis came from the Markit's purchasing managers' index (PMI).

In Germany and France the eurozone’s  two biggest economies, output growth slowed to near-stagnation. The UK exports 40% of its products to the eurozone of 17 nations. Over half of the UK’s exports go to all the EU’s 27 nations

http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8566

http://www.bbc.co.uk/news/business-15016916

 http://ukungeneva.fco.gov.uk/en/newsroom/?view=News&id=656132882