Manufacturing output
slowed to a halt in the three months to June, marking the slowest growth since
April 2016, according to the latest CBI Industrial Trends Survey.
Weaker growth was
predominantly driven by the largest contraction in motor vehicle production
since the financial crisis (March 2009), likely due to the bringing forward of
planned seasonal plant closures to align with previous Brexit deadlines.
However, the picture
for manufacturing output was somewhat better outside of the motor vehicles
sector. Ten out of the other sixteen sub-sectors saw growth, particularly in
the chemicals and food, drink and tobacco categories. Nonetheless, output is
expected to remain broadly flat in the three months to July.
The survey of 308
manufacturers also revealed that total order books deteriorated further on the
previous month, to their lowest since October 2016. Export orders improved
slightly in the three months to June, moving back above the long-run average.
Pricing pressures also remain muted, with only a slight uptick in output price
inflation expected over the next three months.
Stock adequacy
returned to its long-run average in June, after spiking in May to its highest
since 2009. The fall in stock adequacy was mostly driven by the motor trades
sector.
Alpesh Paleja, CBI
Principal Economist, said: “The bringing forward of planned closures to car
manufacturing plants had a real impact and led to manufacturing output grinding
to a halt. While the picture elsewhere in the sector was more benign, total orders
weakened once again revealing some underlying causes for concern.
“There’s clear
evidence that Brexit uncertainty is really biting, with our surveys showing
volatility in both stocks and output in recent months. Firms are desperate to
see an end to the current impasse – that means securing a Brexit deal that can
not only command the support of parliament and the EU, but prioritises the
protection of jobs and the economy."
Tom Crotty, Group
Director of INEOS and Chair of CBI Manufacturing Council, said: “Manufacturers
are proving highly resilient in the difficult circumstances they face, but
these results are further evidence of how ongoing Brexit uncertainty is holding
back growth in key industries.
“The first item in
the new Prime Minister’s in-tray must be to quickly resolve the Brexit
deadlock. We can then look forward to working with the new government to
address long-term challenges and identify new opportunities to enhance
productivity in the sector”.
Across the economy
as a whole, stock building supported economic growth in early 2019. However,
business surveys suggest that underlying conditions remained more subdued, as
Brexit uncertainty and slower global growth bit further on activity – a theme
which appears to have continued into Q2. For more detail on our view of the
outlook, see our economic
forecast.
Key findings:
Output
- Manufacturing output was flat
in the three months to June (+2%), marking the slowest outturn since April
2016. This was down on the three months to May (+14%).
- Output expanded in 10 out of
17 sub-sectors, with growth driven primarily by the chemicals and food,
drink & tobacco’ industries. Motor Vehicle manufacturing was the most
significant drag on output, falling at the fastest since March 2009 (-83%)
- Overall, output is expected
to remain flat in the three months to July (+3%).
Orders
- 16% of firms reported ‘above
normal’ order books, compared to 31% who reported ‘below normal’, giving a
balance of -15%. This represented a deterioration from May (-10%) and was
the lowest balance since October 2016.
- 12% of firms reported ‘above
normal’ export order books, compared to 24% who reported ‘below normal’,
giving a balance of -12%. This was a slight improvement on April (-16%)
and was slightly above the long-run average (-17%).
Stocks
- Present stocks of finished
goods were reported as more than adequate (+12%), but to a lesser degree
to last month (+25%), moving back in line with the long run average
(+13%).
Prices
- Output prices over the next
three months are expected to grow slightly (+4% from -1% in May).
