Manufacturers warn of stagnation

British manufacturers report that output is growing at its weakest pace in nearly two years and expect it to stagnate early next year, held back by worries about the euro zone and weak demand at home, a survey showed on Monday.

The EEF, the main trade body for UK manufacturers, cuts its 2012 growth forecast for the sector to 0.9 percent from 2.2 per cent in September, blaming strong headwinds from the global economy.

The survey showed a balance of 12 per cent of companies reporting a rise in output in the fourth quarter, compared with 27 per cent in the previous three months, the weakest reading since the start of 2010.

The new orders balance fell to four per cent in the three months to December from 23 per cent, also the lowest since the first quarter of last year.

Manufacturing had been one of the strong points of the UK recovery from a recession that ended in 2009. However, growth in the sector, which accounts for about 13 percent of Britain's GDP, has slowed during this year and the outlook is bleak.

"Short-term confidence has all but fallen away," said EEF Chief Economist Lee Hopley. "The signs of caution that had been emerging through the second half of this year have clearly become more entrenched as global growth concerns have escalated," she said.

Britain's economy has barely grown in the past year and public spending cuts to eliminate a bloated budget deficit are taking hold. The government's fiscal watchdog cut its 2012 GDP forecast this week to 0.7 percent from March's 2.5 per cent.

Fears that Britain will fall back into recession early next year and uncertainty about the euro zone debt crisis have undermined confidence among manufacturers.

The balance of companies expecting output to grow in the next three months fell to zero percent in the fourth quarter from 22 percent in the third. The export balance fell to its lowest point since the third quarter of 2009.

The EEF said the pain was being felt across all manufacturing sectors, with makers of metal products, electricals and electronics among those hardest hit.

The employment balance held up relatively well in the fourth quarter at 18 per cent, down from the 20 percent reading in the last survey, published in September. However, a balance of just 5 percent of employers expects to take on staff in the next quarter.

A separate survey last week showed Britain's manufacturing sector shrank for a second successive month in November and at its fastest pace since June 2009 as output and orders fell on weak global demand.