China, oil and sterling leave manufacturers nervous about 2016

Carolyn Fairbairn, of the CBI, said the UK economy had finished the year strongly

The continued economic uncertainty in China, fluctuating oil prices, stagnant growth in Europe and the strong pound have all left UK manufacturers seriously concerned going into the new year, according to a new report.

Manufacturers were also nervous last year, at the height of the eurozone crisis, but confidence now is at an even lower ebb, with just  37 per cent of businesses in the sector confident for the year ahead – down from  44 per cent a year ago and  51 per cent last July.

The latest Business in Britain survey by Lloyds Bank also reveals that every sector of UK business is less confident for the year ahead, apart from retail and wholesalers. 

Overall, the report’s confidence index has fallen from 43 per cent in July to 38 per cent today.

Tim Hinton, managing director of mid-markets and SME banking at Lloyds, said: “Global economic conditions are causing concern in the short term, with sterling’s strength against the euro causing issues for exporters.”

More businesses are also expecting an interest rate rise in the next six months, following the US Federal Reserve’s decision to increase rates last month for the first time in almost a decade. The report found, however, that just 14 per cent of firms are “very concerned” about a rate rise, down from 16 per cent, suggesting preparations to absorb the impact are well under way.

There are fears that inflation could start to rise, with the number of companies saying they are already operating at full capacity hitting an all-time high of 52 per cent.

Hann-Ju Ho, senior economist at Lloyds, said: “The fact that over half of businesses are operating at full capacity is unprecedented in the survey’s history. 

“While this is not matched by investment intentions, it could put upward pressure on inflation through 2016 as the extent of overall slack in the economy continues to diminish.”

Confidence has improved in just two of the 11 regions covered by the survey of 1,500 small and medium sized businesses, with the North West, along with Gloucestershire, Oxfordshire and the South Midlands revealing rises.

However, according to the latest Confederation of British Industry growth indicator, economic expansion across the private sector, including manufacturing and retail, picked up in the three months to December 2015.

Carolyn Fairbairn, the CBI’s director-general, said: “The UK economy has finished the year strongly, with business services acting as a lightning rod for growth.”