Manufacturing output
continued to fall in the quarter to October, driven largely by a significant
decline in the motor vehicles and transport equipment sub-sector, according to
the CBI’s latest quarterly Industrial Trends Survey.
The survey of 258
manufacturing firms also showed that prospects for the following quarter are
downbeat, with firms anticipating output to deteriorate at a slightly faster
rate in the three months to January.
Business optimism
has taken a significant hit, falling at the fastest pace since July 2016, and
optimism about exports for the year ahead deteriorated to the greatest degree
in eighteen years. Investment intentions have also worsened, with plans to
spend on buildings, plant & machinery and training & retraining at
their most negative since the financial crisis.
Brexit uncertainty
weighed heavily on export prospects, with the proportion of firms citing
political/economic conditions abroad as a factor limiting exports over the next
quarter hitting a survey record high. Additionally, the share of firms citing
quota and license restrictions as a factor limiting exports was at its highest
since July 1983.
While new orders
fell at largely the same pace as the previous quarter, firms expect them to
fall at a faster pace in the three months to January. Manufacturers did not
report a sharp increase in stocks ahead of the October 31st Brexit deadline and
don’t expect them to rise again in the three months to January.
Quarterly headcount
was down, falling at its fastest since April 2010, with firms anticipating an
even sharper decline the following quarter – with expectations at their lowest
since the financial crisis.
Rain Newton-Smith,
CBI Chief Economist, said: “This quarter’s findings paint a worrying picture
for the manufacturing industry. A combination of Brexit uncertainty and weaker
global growth are clearly hitting sentiment and export prospects, with job prospects
at their weakest since the global financial crisis.
“Finding a
resolution that avoids a no deal Brexit will give firms the confidence they
need to step-up investment in people, growth and innovation. But for
long-lasting prosperity we need an ambitious free trade agreement which
provides tariff-free access to our largest trading partner for our
manufacturers right across the country.”
Tom Crotty, Group
Director of INEOS and Chair of CBI Manufacturing Council, said: “With Brexit
reaching a critical crossroads, these gloomy results are unsurprising yet still
very concerning. Most tellingly, manufacturers’ investment intentions across buildings,
machinery, and skills are at their worst since the dark days of the financial
crisis.
“Manufacturers will
be closely watching developments in Brussels and Westminster over the coming
days and hoping that policy makers can avert a disastrous no-deal exit. If they
fail, then we could be looking at a far gloomier outlook for our sector in the
coming months.”
Key findings:
Output
- Volumes fell in the three
months to October (-10% from +1% in September).
- Only eight out of 17
sub-sectors saw output expand in the quarter to October, with the fall in
headline output volumes driven mostly by the motor vehicles &
transport equipment sub-sector.
- Manufacturers expect output
volumes to fall at a faster rate in the next three months (-16%).
Orders
- Total new orders fell in the
quarter to October (-15%) at a similar pace to July (-15%).
- The fall in new orders was
driven by a similar pace of decline in domestic orders (-18% from -19% in
July) while export orders fell at a slightly slower pace (-24% from -28%
in July).
- Manufacturers expect total
new orders to fall at a quicker pace in the next three months (-19%), with
domestic orders seeing a slightly slower decline (-12%) and export orders
falling at a quicker pace (-26%).
Headcounts
- Numbers employed fell in the
quarter to October (-9% from -8% in July) at their fastest rate since
April 2010.
- Firms expect employment to
fall at an even faster pace next quarter (-22%), constituting the weakest
expectations for headcounts since the financial crisis (Oct 2009).
Costs
- Average costs in the quarter
to October (+16%) grew at a broadly similar pace to July (+15%).
- Manufacturers expect average
cost growth to remain steady next quarter (+16%).
Business optimism
- Sentiment deteriorated in the
three months to October (-44% from -32% in July), at the fastest pace
since July 2016.
- Optimism about export
prospects for the year ahead also worsened (-46% from -29% in July) to the
greatest extent since October 2001.
Investment intentions
- Investment intentions for the
next year worsened compared to last quarter in three out of four key
categories.
- Firms’ expectations for
investment in the next year in buildings (-44%), plant & machinery
(-34%), and training & retraining (-28%) were all at their weakest
since the financial crisis.
- Expectations for investment
in product & process innovation were broadly flat.
Export orders – looking ahead
- The share of manufacturers
citing political/economic conditions abroad as a factor to limit export
orders in the next three months was at a survey record high (66%).
- The proportion of firms
citing quota and import licence restrictions as a factor to limit export
orders was at its highest since July 1983 (20%).
Stocks
- Stocks of raw materials (+9%)
grew at a broadly similar pace to July (+10%), well down on the April high
(+39%).
- Both stocks of work in
progress and finished goods were roughly flat (0% and -3%, respectively).
- No noticeable pick-up in
stock growth is expected in the next three months, with stocks of raw
materials and finished goods anticipated to be broadly unchanged (+2% and
+2%, respectively), while stocks of work in progress are expected to fall
slightly (-5%).
