Manufacturing new
orders flattened in the quarter to January and sentiment about both the
business situation and export prospects tumbled, according to the latest
quarterly CBI Industrial Trends Survey.
The survey of 326
manufacturing firms showed that output grew at a pace above the long-run
average in the three months to January, a little slower than in the three
months to December. Manufacturers expect volumes to continue growing at a
similar pace over the next three months.
New domestic orders
were unchanged over the past three months, stabilising from a fall in the
previous quarter, which was the first decline in three years. While new export
orders picked up following a fall in the three months to October, growth was
weak and well below the highs seen in mid-2018. Overall order books remained
strong, with export order books particularly robust.
Meanwhile, business
optimism in the quarter to January fell sharply with sentiment regarding export
prospects dropping at the fastest pace since the financial crisis. And
manufacturers’ concerns that political and economic conditions abroad were likely
to limit their future ability to obtain export orders were at their highest
level since the immediate aftermath of the EU Referendum.
Investment
intentions for the coming year remained notably below their long-term averages,
with spending on buildings, plant & machinery, training and innovation all
expected to be lower in the year ahead.
Stocks of raw
materials in the three months to January grew at a similarly strong pace to
October, while stocks of works in progress and finished goods were flat.
Anna Leach, CBI Head
of Economic Intelligence, said: “The manufacturing sector is clearly feeling
the pinch of Brexit uncertainty, with worsening business sentiment coinciding
with an ongoing reluctance to invest in new facilities, machinery, innovation and
training. Notwithstanding continued growth in output, these underwhelming
figures in part reflect businesses’ continuing desire for clarity.
“With uncertainty
risking paralysis among manufacturers, it is vital for politicians to
compromise and break the Brexit deadlock, paving the way for UK manufacturers
to continue trading in global markets with minimal disruption.”
Tom Crotty, Group
Director of INEOS and Chair of CBI Manufacturing Council, said: “The last
quarter has been a challenging one for manufacturers, who are understandably
bracing themselves for the frightening prospect of a ‘no deal’ Brexit.
Uncertainty has sadly become the norm, and this is holding back growth and
investment in the manufacturing sector.
“It is vital that
the Government finds a positive solution to the current Brexit deadlock so
firms can continue to compete both at home and abroad.”
Key findings:
- 11% of firms said they were
more optimistic about the general business situation than three months ago
and 34% were less optimistic, giving a balance of -23%, the fastest
decline since July 2016. Optimism about export prospects for the year
ahead deteriorated at the fastest pace since January 2009 (-32% from -15%
in October)
- 28% of firms said the volume
of output over the past three months was up and 12% said it was down,
giving a balance of +16%, lower than the three months to December (+23%)
- 27% of businesses reported an
increase in new orders, and 24% reported a decrease, giving a rounded
balance of +3% (from -6% in the three months to October). Domestic new
orders were flat (0% from -10% in October) and export new orders rose
slightly (+9% from -8% in October)
- 21% of manufacturers said
employee numbers were up in the quarter to January, while 25% said they
were down, giving a balance of -4%. This constitutes a decline in
comparison with the previous quarter (+7%) and the first fall since
October 2016
- Growth in average unit costs
(+26%) in the quarter to January slowed slightly compared with the
previous quarter (+30%), but remained well above the long-run average
(+12%)
- Average domestic prices in
the three months to January (+7%) grew at a similar pace to the three
months to October (+6%)
- Average export prices
remained broadly unchanged (0%, from +3% in the three months to October),
which was the lowest rate of growth since April 2016.
Key findings –
looking ahead:
- Output growth (+14%) in the
next three months is expected to continue at a similar pace
- New orders over the next
three months are expected to remain flat (-1%), with domestic orders
falling slightly (-4%) and export orders growth expected to pick up
further (+15%)
- Employee numbers are expected
to be unchanged in the next three months (-2%)
- Average unit costs are
expected to grow at a roughly similar rate next quarter (+24%)
- Domestic price inflation
(+18%) and export price inflation (+15%) are both expected to pick up next
quarter
- Orders or sales remains the
factor cited as most likely to limit output over the next three months
(60%)
- Planned spending on plant
& machinery (-18%) and buildings (-24%) remain more negative than
their long-run averages (-7% and -18%, respectively)
- Similarly, manufacturers also
expect to continue to reduce training expenditure and product &
process innovation in the year ahead (-11% from -10% and -8% from -6%,
respectively, in the previous quarter)
- The factor most cited as
likely to limit capital spending in the year ahead was demand uncertainty
(58%), with concerns at their highest in more than five years. Meanwhile,
concerns over labour shortages as a factor to limit investment continued
to be at an all-time high (21%).
