Manufacturing shining in economic gloom

North East manufacturers are continuing to defy the economic gloom experienced by other industry sectors by posting their tenth consecutive quarter of healthy growth.

Despite reports of weakening economic growth in the UK, firms in the North East reported a rise in domestic orders in the second quarter of 2008, according to a survey published by manufacturers' organisation EEF and Grant Thornton. Export orders have also remained relatively strong although there are indications of a softening, possibly due to weakening conditions in the United States.

The survey did however add to the Bank of England's concerns about inflation - some firms have already increased prices and more are expecting to do so. In contrast, it also suggests that manufacturers have not been able to pass on all of the cost rises they have suffered and that profit margins have been squeezed. In addition, higher inflation is not currently feeding into higher wage settlements, with companies bearing down on wage costs to offset increases in other costs.

Tony Sarginson, EEF Regional Manager said: "Manufacturers in the North East are providing a beacon of light amidst the current economic gloom and remain cautiously optimistic about their immediate prospects. Companies are responding to the squeeze on their margins from rising costs by continuing to invest in their businesses to drive up productivity. However, at a time of heightened uncertainty, the government needs to send a clear message that it will ensure that the UK remains an attractive place to do business."

Bob Hale, Head of Manufacturing at Grant Thornton, said: "[Manufacturers] are proving much more resilient to the credit crunch than many analysts had predicted. The pain of raw material price inflation and tighter refinancing is balanced by the gain of a weaker pound for exporters and the growing demand for the quality output that UK manufacturers have gained a reputation for producing."

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