Manufacturing volumes fell over the past quarter, but expectations turn positive - CBI Industrial Trends Survey

Manufacturing output volumes fell in the quarter to February, at a broadly similar pace to the three months to January, according to the CBI's latest monthly Industrial Trends Survey (ITS). Looking ahead, manufacturers are more optimistic, expecting a modest rise in volumes in the three months to May.

The volume of total order books in February improved relative to last month, though export order books were largely unchanged. Both total and export orders books remained below average. Firms also reported that stock adequacy deteriorated sharply compared with last month, with the balance falling just below the long-run average.

Expectations for selling price inflation over the quarter ahead eased relative to January, but remained above the long-run average.

The survey, based on the responses of 352 manufacturers, found:

• Output volumes fell in the three months to February, at a broadly similar pace to last month (weighted balance of -12%, from -13% in the quarter to January). However, expectations have improved, with manufacturers anticipating output volumes to rise in the three months to May (+8%, vs -19% in January).

• Output fell in 16 out of 17 sub-sectors in the three months to February, with the fall driven by the glass & ceramics, building materials and metal manufacturing sub-sectors.

• Total order books were reported as below "normal", registering a slight improvement relative to January (-28% from -34%). The level of order books in February remained well below the long run average (-13%).

• Export order books were also seen as below "normal" in February and to a similar extent as in January (-36% from -38% last month). This was also below the long-run average (-36%).

• Expectations for average selling price inflation eased in the quarter to February (+19% from +27% in January). But expectations remain above the long-run average (+7%).

• Stocks of finished goods were reported as more than "adequate" on balance in February (+4%), but stock adequacy stands below the long-run average (+12%).

Ben Jones, Lead Economist, CBI, said:

"The survey paints a downbeat picture of the manufacturing sector over the last three months, which can be attributed in part to low domestic business confidence following the Autumn Budget combined with a subdued international environment.

"Manufacturers expect to raise output in the quarter ahead. But with firms having rapidly run down stocks of finished goods, it's possible that the need to re-build inventories partly explains this rebound. Order books remain weak from a long-term perspective.

"We know much of the innovation and investment necessary to drive economic growth will come from firms across the UK. Tentative signs of optimism in our survey suggest that companies are poised to work with the government to create the right environment for expansion.

"Nonetheless, the current weakness in manufacturing activity highlights how important the government's renewed focus on growth is. Many businesses are still struggling with rising prices, higher employment costs and continued pressure from stubborn energy bills.

"The government has several levers to create the right conditions for the ambitious delivery of growth set out by the Chancellor last month. An international facing industrial strategy, and matching skills to economic needs with changes to the Apprenticeship Levy, would be significant tailwinds for the manufacturing sector."