Printers ink in a downturn

THE printing industry is experiencing the beginnings of a full- blown recession that analysts in the print trade warn could spread to the rest of the economy by autumn.

The print industry is a bellwether for both manufacturing and services. Printers are often the first to be hit in a downturn as orders are cut back by advertisers, tour operators, financial services and consumer magazines. What happens in printing often signals what will happen in the economy as a whole six months later.

"The industry traditionally expects the first quarter of the year to be slow. But the downturn we are seeing now is more than seasonal, its cyclical," said David Ross, an economist with the British Printing Industry Federation. Printers all over the country are reporting sharp falls in orders after the pre-Christmas boom, according to anecdotal evidence gathered by Mr Ross from 100 firms.

Under pressure to get business, printing firms are signing up for jobs at below cost simply to maintain cash flow.

"If you're jogging along, you're doing very well," said Philip Colchester, managing director of the East Anglia-based company Breckland Print. "Trade hasn't picked up since Christmas."

Mr Ross has found that the continued strength of sterling is adding to the printers' burden. "Those who export are losing their markets, and having to accept much-reduced profit margins. Then there are printers who have customers capable of sourcing abroad, and that too is forcing British printers to reduce their prices.

"For those who can supply the UK from outside, the UK is very attractive, and that is putting more pressure on domestic companies. Finally, companies that would normally look overseas for business (if payment in foreign currencies were more attractive) are diverting back home, which is causing competition to become even tougher," said Mr Ross.

Colchester-based Spottiswood Ballantyne recently laid off around 70 people, and one London printer with a workforce of 17 lost pounds 25,000 because of competition from large printers desperate to take on any job.

The risk is that the well-publicised troubles of manufacturers struggling under the weight of a strong pound will spill over into the services sector which has been booming. Manufacturing accounts for just one-fifth of total UK economic output. Services make up the bulk of the economy.

According to government figures released last week, the manufacturing sector of the economy contracted by 0.5 per cent in the final quarter of last year compared with the third quarter. The services sector of the economy grew by 1.2 per cent.

But on Thursday, Stuart Hampson, chairman of department store and supermarket group John Lewis, a leader in the services sector, warned of difficult times. "We already face some tough going in the year ahead, even without further rises in interest rates or tax tightening in the Budget next week," he said. "For the retail sector, we expect this to be a year of squalls rather than windfalls."

George Magnus, chief economist at UBS, said: "If manufacturing continues to deter- iorate, the peak in services could be now or soon, and some slowdown would then be expected."

Adam Cole, UK economist with HSBC James Capel, agrees. "The real question is when will the services sector follow manufacturing. It's more likely to be in the second half of the year when you see the services sector slowing significantly.