United Kingdom
Optimism and output in UK manufacturing rises but output in Euro area sees falls
Both the optimism and output levels of UK manufacturers have seen marginal increases according to BDO’s latest Manufacturing Optimism index. However, manufacturing output in the Eurozone continued to fall.
The UK Manufacturing Optimism Index, which measures medium-term business confidence in the manufacturing sector, was at 86.4 in April 2009. This figure is up 4.3 points from the 82.1 points seen in January this year.
Manufacturing optimism in France, at 89.7, and in Italy, at 93.8 were both unchanged between January and April but remained far below the 100 mark, which represents trend levels of growth in the sector. Also seeing off a decline was optimism in German manufacturing, which recorded its first increase for two quarters. The optimism index in April was at 87.1, a 3.9 point increase from January.
The depreciation in the Sterling, which made UK goods more competitive against those from overseas, helped drive a modest improvement in the output index for UK manufacturers. The BDO Manufacturing Output index, a measure of order book strength and short-run turnover expectations one quarter ahead, stood at 83.6 points in April. This was a 0.6 point increase from the 83.0 points seen in January.
The output index, however, paints a gloomy picture for manufacturing in the Eurozone with the manufacturing output index declining over the quarter, albeit at a much slower rate than previously. Impacted by a strong Euro, which led to less competitive prices in the Eurozone, the BDO Manufacturing Euro Area Output index fell to 84.5 in April from 85.1 in January, a modest decline compared to the 7.9 point fall from October to January.
Kim Stubbs, business restructuring partner and manufacturing sector specialist at BDO LLP, said: “Until now, confidence in UK manufacturing this year has been in freefall and despite conditions in the labour market being likely to worsen in the coming months, some manufacturing businesses are starting to view the future with less trepidation. The indicators also suggest that the combination of government initiatives are beginning to kick-in and the pressure that has been applied on banks to increase their lending is beginning to take shape.”
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For more information or a copy of the full report, please contact Stephanie Aneto at BDO on 0207 893 3073 email: stephanie.aneto@bdo.co.uk
Notes to editors:
1. The Manufacturing Optimism Index is taken from BDO’s Business Trends Report. The indices are calculated by taking a weighted average of the results of all the UK’s main business surveys carried out during the last month.
2. The Euro area indices are calculated by taking a weighted average of the results of the Europe’s main business surveys. They incorporate the results of the German IFO surveys, French INSEE surveys, Italian ISAE surveys, plus the main business surveys from the Austrian WIFO, Belgium National Bank, Spanish MCYT, Greek Foundation of Economics and Industrial Research, Irish Economic and Social Research Institute, the STATEC survey from Luxembourg, the Confederation of Finnish Industry and Employers, the Dutch central Bureau of statistics and the Portuguese INE surveys as well as the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services for Europe.
3. Methodological notes:
The BDO Monthly Business Trends Indices are prepared on behalf of BDO by the centre for economics and business research (cebr).
Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.
The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.
The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.
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