Manufacturing output volumes fall at their fastest rate in over two years

Manufacturing output volumes fell at their fastest pace since September 2020 in the three months to February, according to the CBI’s latest Industrial Trends Survey.

The survey found that expectations for selling price inflation were at their lowest since May 2021, having declined steadily from the multi-decade highs seen in early 2022. But expectations for selling price inflation remained well above their long-run average.

The volume of total order books and export order books were reported as below normal, while stocks of finished goods were seen as broadly adequate.

The survey, based on the responses of 280 manufacturing firms, found:

• Manufacturing output volumes fell in the three months to February (weighted balance of -16%, from -1% in the three months to January), a significant disappointment to last month’s expectations (+19%), and at the fastest pace since September 2020. Output is expected to rise moderately in the three months to May (+7%).

• Output fell in 11 out of 17 sectors in the three months to February. The decrease in output reported this quarter was largely driven by the motor vehicles & transport equipment, chemicals and paper, printing & media sectors.
• Total order books were reported as below “normal” in February, to a similar extent as in January (-16% from -17%). This was broadly in line with the long-run average (-13%). Export order books were also seen as below normal and to a greater extent than last month (-27% from -22%). This was below the long-run average (-18%).
• Expectations for average selling price inflation in the three months ahead were the lowest since May 2021 (+40%, from +41% in January), having declined steadily from the multi-decade highs seen in early 2022 (+80% in March 2022). But they remained well above the long-run average (+6%).
• Stocks of finished goods were seen as adequate in February, with the balance broadly similar to January (+9% from +12%).

Anna Leach, CBI Deputy Chief Economist, said: “Conditions in manufacturing remain challenging, with output disappointing and order books having thinned out since late last year. However, if growth is going to return to the sector on a sustainable basis, then manufacturers need more than the boost some will receive from lower energy prices over the winter season.

“The Chancellor must use the upcoming budget to tackle one of the biggest threats to the future competitiveness of the sector. Following the Inflation Reduction Act in the US, manufacturers are worried about the relative competitiveness of operating from a UK base. They are calling on the government to deliver its own alternative to help drive a home-grown, secure, low-cost energy system and sector by significantly boosting incentives for green investment in the UK.”