Manufacturing output contracts in the quarter to March - CBI Industrial Trends Survey

Manufacturing output volumes fell in the three months to March, at a slightly steeper pace than in the three months to February, according to the CBI’s latest monthly Industrial Trends Survey (ITS). Looking ahead, manufacturers expect output volumes to be broadly unchanged in the quarter to June.

The volume of total order books in March was stable relative to last month, while export order books improved slightly. Both total and export order books are still well below their long-run averages. Firms reported that stock adequacy picked up compared with February, with the balance returning above the long-run average.

Expectations for selling price inflation over the quarter ahead were largely unchanged relative to February, remaining above the long-run average.

The survey, based on the responses of 344 manufacturers, found:

• Output volumes fell in the three months to March at a steeper pace than last month (weighted balance of -18%, from -12% in the quarter to February). Manufacturers expect output volumes will be broadly unchanged in the three months to June (-2%).
  • Output decreased in 14 out of 17 sub-sectors in the three months to March, with the decline driven by the glass & ceramics, building materials and electrical goods sub-sectors.
• Total order books were reported as below “normal” in March (-29% from -28%). The level of order books remained far below the long-run average (-13%).
• Export order books were reported as below “normal” but improved relative to last month (-29% from -36%). This was still below the long-run average (-18%).
• Expectations for average selling price inflation were broadly unchanged in March (+22% from +19% in February). Expectations remain above the long-run average (+7%)
• Stocks of finished goods were reported as more than “adequate” in March (+16% from +4% in February), with stock adequacy now standing above the long-run average (+12%).

Ben Jones, CBI Lead Economist, said:

“Conditions in the UK’s manufacturing sector remain subdued. Although there are some pockets of strength, notably in the aerospace and defence sectors, many firms continue to report that their order books remain weak.

“Manufacturers responding to the survey reported that customers are generally nervous about proceeding with capital investments and are conserving funds ahead of upcoming increases to National Insurance and minimum wages, leading orders to be cancelled or at least delayed until later in the year.

“While output expectations are not as gloomy as at the turn of the year, the sector looks set to remain in a holding pattern in the short-term.

“Next week’s Spring Statement and continuing challenges to the public finances means a lot of the growth the country needs will have to come from the private sector. But businesses need a reason to grow and invest in uncertain times.

“A number of measures could help boost confidence - setting an ambitious R&D spending target so the government can position the UK as a world leader for innovation or ensuring that the Apprenticeships Levy is fully flexible to allow companies to invest in a range of employee training, will go some way to delivering the sustainable growth the country needs.”