Dark days for industry signal long recession

The CBI's closely watched industrial trends survey for October says that demand for UK goods is falling at the fastest rate since 1999.

In addition, the business lobby group warns that:
Confidence levels among manufacturers is at its lowest for 28 years
Export orders are at a five-year low
The manufacturing sector is already in recession
In the last three months, only 16% of companies have seen a rise in orders while 46% say orders have fallen
About 23,000 manufacturing jobs will be lost in the third quarter
Another 42,000 will go in the final three months of the year

Industry leaders and City experts immediately called on the Bank of England to slash interest rates as soon as possible to ease the worst of the pain.

The Bank has just cut base rates from 5% to 4.5% and is expected to cut again, to 4%, in November. Economists are forecasting that rates will be as low as 2.5% by 2009 as the UK economy shrinks.

Howard Archer at Global Insight said: "The CBI survey is quite simply terrible, fuelling fears that the UK could be in for a prolonged and deep recession. Extreme weakness is evident across the board, indicating that manufacturing's downturn had deepened."

He added: "It is blatantly obvious that the manufacturing sector is already in recession even if the overall economy hasn't officially got there yet."

The Government has promised to do everything it can to assist small and medium-sized businesses, but the £37 billion bailout of the banking industry means its firepower will be limited.

CBI chief economic adviser Ian McCafferty said: "The slowdown in the UK economy is now spreading to sectors previously resilient to the weakness in the banking and housing market."
Capital Economics said in a note to clients that "conditions in industry may be even worse than during the early 1990s".

Until now, most City commentators tended to argue that the downturn for manufacturing would not be as bad as the one endured under the John Major government.

Factories are moving to slash costs, partly by cutting jobs and also by reducing spending on machinery and buildings. The effects of the credit crunch mean that even those firms looking to expand may struggle to raise sufficient capital to fulfil their ambitions.

McCafferty added: "This survey was conducted during a period of exceptional economic turbulence, so it is unsurprising that confidence has taken such a hit.

"It is also of serious concern that constraints on capital now appear to be affecting manufacturers in a way that had not been the case earlier."