Industry is under the cosh, says CBI

Britain's manufacturers are shedding jobs at the rate of 7,000 a month as weak order books and the sharpest rise in costs for a decade put a squeeze on profits, the CBI said yesterday.

In the last significant piece of economic news before the general election, the employers' organisation delivered a downbeat picture of the state of industry and urged the Bank of England to resist pressure for higher interest rates.

"It really is a very disappointing time for manufacturing," said Sir Digby Jones, the CBI's director general.

"Orders are falling sharply and costs are rising, both at the same time and both at rates that give us enormous cause for concern."

The CBI's quarterly industrial trends survey, of more than 670 firms, found the slowdown in consumer demand had left the order books of UK firms in their poorest state for almost two years. Output had fallen since the turn of the year - the first decline in a year and a half - and the 21,000 job losses seen in the first quarter were expected to be followed by a further 22,000 in the three months to June.

With the price of crude oil more than $10 a barrel higher than at the time of the CBI's January survey, 41% of firms said they had seen costs rise over the latest three months, while only 9% said they had fallen. The CBI said this showed costs rising at their fastest rate since July 1995.

It added that prices were also rising at their fastest rate since 1995, but stiff competition meant they were doing so far less rapidly than costs. Oil prices were 30% higher in April than in January and up by 67% on a year earlier. The costs of raw materials such as metals were much higher, the employers' organisation said.

Firms were shedding labour, mothballing plants and fearful of the possibility that higher interest rates and post-election tax increases might add to their financial difficulties. Business confidence sagged for the third successive survey, resulting in cutbacks in spending on both plant and machinery.

Disappointing growth in Europe and a slight hardening of the pound against the euro meant expectations at the turn of the year of a pick-up in ex port orders had not been met. "This [the survey] is further evidence that any post-election tax raid on business would hit a manufacturing sector already in a fragile position. We will resist any such move fiercely."

Sir Digby said he wanted politicians to "look voters in the eye" and tell them they had to pay more tax in the event that the public finances came under pressure. "Business has had higher taxes up to here," he added.

Some sectors of industry - pharmaceuticals, aerospace, electrical engineering and, despite the problems of Rover, automotives - were still in good shape, Sir Digby said, but industry as a whole was "seriously under the cosh".

Some City analysts believe that interest rates should be raised to 5% next month to dampen inflationary pressure, but the CBI said it opposed such a move.

"The Bank of England must continue to ensure that inflationary pressures remain under control, but they must also avoid a premature rise in interest rates."

Sir Digby added that if the recent weakness in the economy persisted for another couple of months he would be looking for a rate cut.

Paul Dales, an analyst with Capital Economics, said the report confirmed that industry remained "very weak", and was consistent with a drop of between 3% and 4% a year in manufacturing output.