Output Volumes Fall and Employment Flatlines – CBI Industrial Trends Survey

UK manufacturing output volumes fell in the quarter to April, according to the CBI’s latest Industrial Trends Survey. Manufacturers expect output volumes to rise in the next three months.

Employment across the sector was broadly stable in the three months to April, following two years of steady increases. Meanwhile, the share of firms citing a shortage of skilled labour as a factor likely to constrain output over the next three months eased for the second consecutive quarter, having registered the highest reading since 1973 in October last year. The share of firms citing materials or components shortages as a constraint fell for the fourth quarter running.

Cost and price inflation remained above average in the quarter to April, but continued to ease. Growth in average costs per unit of output and growth in average domestic prices have now slowed for four successive quarters. Manufacturers expect growth in costs and domestic prices to ease further in the quarter to July.

The survey, based on the responses of 262 manufacturing firms, found that:

• Output volumes fell in the quarter to April, and more steeply than in the three months to March (weighted balance of -15% vs -6%), with the balance among the weakest since the early months of the COVID-19 pandemic in 2020. Output fell in 13 out of 17 sub-sectors, with the decline driven by the motor vehicles & transport equipment and mechanical engineering sub-sectors. Manufacturers expect volumes to grow in the three months to July (+8%).
• Demand-side concerns were the most cited factor likely to limit output over the next three months, with 57% of respondents reporting orders or sales as a factor likely to limit output in the next three months, the same as in January. However, this share remained below its long-run average (71%).
• The share of firms citing supply-side factors remained well above average, but has eased: shortages of skilled labour (31%, from 38%; average of 16% and the lowest since April 2021); shortages of materials/components (37% from 44%, average of 13% and the lowest reading since October 2020).
• Total new orders were broadly stable in the quarter to April (with a balance of -3% in April, the same as in January). Domestic orders were firm through the quarter (+2%, from 0%), while new export orders declined sharply (-16%, from -8%). Manufacturers expect total new orders to rise over the next three months (+9%), driven by a rise in domestic orders.
• Business sentiment was broadly unchanged, having deteriorated steadily during the previous five quarters (balance of -2%, from -5% in January). Meanwhile, export optimism fell for the sixth consecutive quarter, though at the slowest pace since October 2021 (-17%, from -22% in January).
• Investment intentions for the year ahead were mixed. Over the year ahead, manufacturers expect to increase investment in training and retraining (balance of +15%, from +20% in January), in plant and machinery (+14% from +8%) and in product and process innovation (+8% from +6%). Investment in buildings is expected to decline in the year ahead (-4% from -9%).
• Average costs growth eased significantly in the quarter to April, but growth still remained above the long run average. Costs rose at the slowest pace since April 2021 (balance of +50% from +64% in January, and far above the long-run average of +17%). Costs growth is expected to slow further in the quarter to July (+44%).
• Numbers employed remained broadly stable in the three months to April, having increased steadily since January 2021 (balance of +2% from +14%). Firms expect numbers employed to rise moderately in the next three months (+11%).