Manufacturers are still in a strong position despite the failure of financial markets but firms will run into real trouble unless confidence returned to the banking system soon, MPs have been told.
The warning was issued by Steve Radley, chief economist of the Engineering Employers’ Federation - which represents 6,000 manufacturing and technology firms across the country - when he addressed the Business and Enterprise Committee, chaired by Worcestershire MP Peter Luff.
It came as Gordon Brown held talks with the governor of the Bank of England, Mervyn King, and Lord Turner of Ecchinswell, the chairman of the Financial Services Authority, on the worsening financial crisis.
The meeting fuelled speculation that the Government is preparing to bring forward the announcement of a rescue plan for Britain’s banks after their shares took another pummelling on the markets.
Shares in RBS closed 39 per cent down following a report that its chief executive, Sir Fred Goodwin, had met Mr Darling on Monday night - with the bosses of Barclays and Lloyds TSB - to discuss an injection of Government cash.
RBS was forced to issue a statement insisting it had not made any request for Government capital.
While crisis continues to engulf the banking sector, Mr Radley said manufacturing remained resilient. He told the MPs: “Manufacturers have been through a lot of tough times in the past couple of decades, and they are extremely resilient.”
The committee, which includes West Midlands MPs Julie Kirkbride (Con Bromsgrove) and Adrian Bailey (Lab West Bromwich West), is also set to quiz Peter Mandelson, the new Business Secretary.
The MPs are conducting an inquiry into whether regional development agencies, the Government quangos spending billions of pounds a year on supporting industry in the English regions, are effective or not.
But Mr Luff (Con Mid Worcestershire) said they were also planned a more wide-ranging question and answer session with Mr Mandelson, the former EU Commissioner who was recalled to the Cabinet last week.
Mr Radley told the committee that manufacturing remained profitable despite reports of doom and gloom in the economy.
He said: “A lot of companies have felt a disconnect between what is happening in the financial markets and their own situation, which for many of them has been quite strong.”
Some firms had begun to find trading more difficult with exports falling, he said.
But others had found new markets which were still buying, and were now exporting to the Middle East or to developing nations.
“There is still a mood of resilience out there,” Mr Radley said.
Banks which had previously ignored manufacturing as an old-fashioned and unexciting sector to invest in were now taking a renewed interest in it as the financial sector ran into difficulty, he said.
“Some banks have already said ‘we understand you, you are a steady proposition’.”
He added: “We need to move fairly quickly to shore up confidence in the banking system, but what we don’t want to do is rush in to something that doesn’t work.”
Chris Hannant, head of policy for the British Chambers of Commerce, which represents chambers from across the country, said the British “real economy” outside the financial markets was “grim” but not as weak as reports suggested.
He said: “The picture looks pretty grim out there in the real economy.
“We have got some of the worst indicators in terms of confidence and cash flow since the survey began 17 years ago.
“However, things are tough but they are not disastrous.
“We are in a relatively good place in terms of unemployment and interest rates.
“However, we are very concerned about the potential impact that the seizing up of money markets and lack of liquidity of the banks may have.”
He added: “The financial crisis could turn what is a downturn and a tough economic situation into something much, much more serious.”
The Chambers were calling on the Bank of England to cut interest rates by half a per cent and on the Government to cut business taxes, he said.