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Manufacturing firms cut training in the face of falling profits

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The latest Regional Trends Survey from the CBI and Business Strategies shows orders falling over the past four months in all parts of the UK, except Northern Ireland. Firms expect orders to fall further over the next four months, except in the East of England and the South East, where a small increase is anticipated, and the West Midlands, where the outlook is broadly flat.

Business confidence has deteriorated in most regions compared with four months ago, although the decline is not as steep as in the last survey which may have been influenced by September 11. The decline in optimism was most marked in the West Midlands, which recorded a balance of minus 59 per cent.

Low confidence levels have impacted on the willingness of firms to invest. Planned cutbacks in spending on plant and machinery are universal. But companies also plan to cut back on training in seven of the 11 regions, most notably in Northern Ireland and the East Midlands. Investment in product and process innovation is earmarked for reduction in five regions, particularly in the East Midlands and the South East.

Peter Gutmann, Associate Director at Business Strategies, said: “Manufacturing undoubtedly faces further severe problems in the near term as world demand remains weak. But there is a glimmer of hope, recognized by a few regions, that things could improve as the year progresses and global recovery gets under way.”

Ian McCafferty, CBI Chief Economic Adviser, said: “It is particularly worrying that firms are cutting investment to reduce pressure on profit margins. This could cause real problems in the long term. Lower spending on innovation and training is a major threat to future productivity. The slight recovery in sentiment is encouraging but there is a long way to go before manufacturing is out of the woods.”

With global demand weak, UK export orders fell sharply in all regions. But the next four months look less bleak. Orders are expected to rise slightly in the South East, Wales and Northern Ireland, while firms anticipate only modest declines in the North East and the East of England. Total output fell, declining at its fastest rate since July 1999. The sharpest falls were in the North West, Scotland, the North East and Yorkshire and the Humber. Projections for the next four months are slightly less negative. Output is expected to increase in the North East, the East of England, the West Midlands and Northern Ireland.
5 February, 2002

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