Output volumes fall, but near-term outlook has improved – CBI Industrial Trends Survey

Manufacturing output volumes fell in the quarter to November, and at a faster pace than in the three months to October, according to the CBI’s latest Industrial Trends Survey (ITS). But the near-term picture is more positive, with manufacturers expecting output volumes to rise modestly in the quarter to February.

Total order books improved relative to last month, while volumes of export order books were unchanged. Both total and export order books were reported as below their long-run averages. Expectations for selling price inflation picked up in November, with prices expected to rise at a rate that is broadly in line with the long-run average. Stock adequacy (for finished goods) was the highest since August 2020.

The survey, based on the responses of 317 manufacturers, found:

• Output volumes fell in the three months to November, at a faster pace than in the quarter to October (weighted balance of -12%, from -6% in the three months to October). Output is expected to rise in the three months to February (+9%).
• Output decreased in 14 out of 17 sub-sectors in the three months to November, with the fall driven by the chemicals, mechanical engineering and metal products sub-sectors.
• Total order books were reported as below “normal” but improved relative to last month (-19% from -27%). The level of order books remained below the long run average (-13%).
• Export order books were also seen as below “normal” in November to the same extent as last month (-27%). This was also below the long-run average (-18%).
• Expectations for average selling price inflation rose in November (+11% from 0% in October) with the balance standing broadly in line with the long-run average (+7%).
• Stocks of finished goods were seen as more than “adequate” in November (+21% from +17% in October), with the balance the highest since August 2020.

Ben Jones, CBI Lead Economist, said: 

“Output has underperformed expectations in recent months, with manufacturers pointing to uncertainty around the UK Budget, the US elections and recent political instability in Europe as among the factors leading customers to pause or cancel orders.

“Many firms still need to work through the implications of the Budget for their own plans for pay, hiring and investment, but it’s an encouraging sign that output volumes are expected to return to growth in the quarter ahead, with order books also showing some improvement this month.

“Now is the time to build on this momentum by prioritising the policies that will give firms the confidence and certainty to invest, making the UK a more attractive place to do business. The Government can act now to implement key enablers that will kickstart growth and lead the economy into a path of long-term, sustainable prosperity, including a clear Industrial Strategy, reforms to business rates and the apprenticeship levy.”