While the UK economy as a whole saw above average growth in Q4 2006, the UK manufacturing industry experienced a decline with figures from the BCC QES for Q4 2006 revealing a sharp fall in export orders and sales. Increasing wage costs, a strong pound and cheaper imports continue to put UK manufacturers under increasing pressure to either downsize or relocate.
David Frost, Director General of the BCC said: “2007 is looking ominous for the manufacturing sector. There has been a relentless decline in the number of jobs which it provides in the UK economy and this shows no sign of abating. Manufacturers are operating in a fragile environment - as well as operating within a complex and burdensome regulatory regime, UK businesses must now compete with rising interest rates, stronger sterling, and low-cost imports. Many are struggling in the competitive global environment with the result on local communities being the loss of jobs and financial resources in regions of the UK in which opportunities can often be hard to come by.”
The two interest rate rises, which, were used to stem increasing inflationary pressures in the UK economy, have added to the difficulties that UK manufacturers face with the higher value sterling pound making it more challenging for them to compete on the domestic and international markets. For some this has prompted them to either relocate or shut up shop completely – taking jobs for locals with them.
Steven Evans MD of Brainboxes, a PC component manufacturer, says the impact of these rate rises is twofold:
“Where we’ve agreed cost prices in US dollars the value of this charge is steadily decreasing putting increasing pressure on our margins. If we try to win large volume business against competitors it very difficult as our price is so much higher than theirs. For our customers who buy on a sterling rate they too are finding it very difficult to compete. Another rate rise would definitely be bad news particularly from an export point of view – that would be the biggest impact.”
“We have always strongly argued the case for manufacturing in the UK because of the advantages it brings such as keeping design close to manufacturing and reacting better to changes in the market place – but the more the pound appreciates against the dollar the harder it gets for us.”
David Frost is clear that the Bank of England should resist further interest rate rises:
“Unless there is stark evidence to contrary for the sake of the UK’s manufacturing sector the Bank of England should return to “being boring” and be wary of a further rate rise.”
“The impact of job losses on local communities is devastating - structural unemployment, ghost towns as young people move to find employment elsewhere, and the reduction in economic growth and output in certain regions; the list goes on."
Steven Evans, MD of Brainboxes is available for interview. Please contact the British Chambers of Commerce Press Office for contact details.