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Britain's manufacturing industry is facing one of its toughest battles of the past two decades as the slump in the sector's fortunes gathers pace. The business environment is worsening at an "alarming" rate and the government and Bank of England need to intervene, the manufacturers' organisation, the EEF, warns today.
It wants the Bank of England to cut interest rates by a full percentage point and argues that the government must ensure companies can access affordable credit.
"It is imperative the government and the Bank of England continue to pull every lever at their disposal," said the EEF's chief economist, Steve Radley.
In its latest quarterly trends survey, published jointly with Grant Thornton, the EEF found that domestic orders were at their weakest since 2001, the outlook for employment and investment had worsened and activity would fall further over the next three months.
The EEF rammed home the grim message from members by warning that it expected manufacturing to contract by 1.3% this year and 5% in 2009 and the engineering sector to shrink by 1.6% in 2008 and 6.3% next year.
The survey shows that the downturn is affecting companies right across Britain with all regions reporting a slowdown in orders and only the south-west reporting higher output. Over the next three months all the regions, except the south-west, are more pessimistic.
Bob Hale, the head of Grant Thornton's manufacturing group, said: "The survey indicates that the positive progress made by the sector over the last few years has been destroyed almost overnight by the catastrophic effect of the recent turmoil in the financial markets.
"The sector needs immediate and positive help from the government and the Bank of England to ensure the release of funding for investment and development, and also further help in interest rate cuts and tax incentives. Without this the sector faces a very bleak outlook for 2009."
The EEF is concerned that the pace of job losses is picking up and says that worries about employment are feeding through into wage bargaining. Radley warned: "We are looking at 90,000 job losses next year and I think there is very substantial risks to that forecast.
For many firms pay rises are off the agenda. Companies are talking about pay freezes or deferrals and, in the odd case, about pay cuts."
The organisation is particularly concerned about the fallout from the slowdown on the supply chain. "We haven't seen the full effect yet - that will be coming through in the next couple of months," Radley said. "Smaller companies are very vulnerable. If you look at an industry like motor vehicles - if we have a big change in the supply chain it raises a question mark about where the manufacturers decide to locate."
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