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Northern Ireland manufacturers paying high price for strong sterling

By Staff Reporter

Published 27/10/2015

UK factory orders have suffered their biggest quarterly fall in three years
UK factory orders have suffered their biggest quarterly fall in three years
Stephen Kelly

The strength of sterling has "wiped out profitability" for many Northern Ireland manufacturers in recent months, according to a leading employers' organisation.

Manufacturing NI says that while companies have had to concede margins to maintain contracts, they're adapting to the trading conditions.

Chief executive Stephen Kelly said: "Being a border market, I think our companies have been quicker to respond given their long history in dealing with movements in currency, but with margins cut to the bone it's critical for the Executive to bear down on the costs of doing business or face losing jobs."

The latest industrial trends report from the CBI reveals that UK factory orders suffered their biggest fall in three years in the quarter to October as slow domestic demand added to already weak exports.

The report said worries about price competition rose and the number of manufacturers citing uncertainty about demand as a constraint on investment was the highest in two years. However, firms said they expected overall conditions to stabilise in the present quarter.

CBI director of economics Rain Newton-Smith said: "Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they're also facing pressure back home as domestic demand is easing. While on balance, firms expect orders to stabilise next quarter, it's disappointing that firms are having to scale back their investment in innovation."

Looking at the Northern Ireland picture, Stephen Kelly said: "The overall sense I get is that we're not experiencing the same declines as in GB. Certainly the beginning of 2015 saw particularly strong performance and whilst the hope was we could push on from there, things have really not improved much, if at all.

"There is wider uncertainty about the potential for a decline in the world economy and losing competitiveness. Strong economies produce, not just consume or provide services. We have a strong heritage in manufacturing and are well placed to grow jobs from indigenous firms if the right conditions are created for them to succeed. A manufacturing strategy would help as would certainty on issues like industrial de-rating as well as challenging costs like energy prices."

The CBI's Rain Newton-Smith added that the CBI wanted the government to protect export and innovation spending, alongside other growth-boosting areas, in its comprehensive spending review in November.

Earlier this month the International Monetary Fund warned that the risks of a global financial crash had increased as the slowdown in China and potential US rate rises threaten the stability of debt-laden emerging economies.

IHS chief UK and European economist Howard Archer said: "This is a thoroughly disappointing survey through and through which indicates that manufacturers' struggles are intensifying as a moderation in domestic demand adds to a still weakening export outlook. Persistent and seemingly deepening manufacturing weakness is very worrying for hopes that UK growth can ultimately become more balanced and less dependent on the services sector and consumer spending."

Mr Archer added that the CBI survey indicates that manufacturing output is in "grave danger" of contracting again in the fourth quarter of the year - after almost certainly falling for a third quarter in a row in the third quarter of 2015.

Belfast Telegraph

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