Recovery in manufacturing order books promising - CBI

According to the survey of 388 manufacturers, output grew at the fastest pace since December 2017 in the three months to June, broadly in line with expectations. Growth was broad-based, with output growing in 14 out of 17 sub-sectors, with growth mostly driven by “Food, Drink and Tobacco”, and “Mechanical Engineering”. Respondents anticipate that output growth will slow slightly over the next three months.

Total order books returned to around the robust levels recorded at the end of 2017, while export orders remained stable and well above average, in line with the past 16 months.

Expectations for output price inflation softened to the weakest in almost a year, while stocks levels moved back below the long-run average.

While we expect manufacturers to continue to benefit from robust external demand and the lower exchange rate, we expect overall economic growth to remain subdued as consumer income growth remains weak and investment is held back due to uncertainty. For more detail, see our latest economic forecast.

Anna Leach, CBI Head of Economic Intelligence, said:

“The recovery in orders and a return to bumper growth in production suggests the lull in manufacturing activity may be over. While risks to demand persist from Brexit and escalating global trade tensions, firms can work with the Government to nurture a pro-enterprise environment that helps UK growth to shift up a gear. There is much within the UK’s control that can be acted on now to lift UK productivity, from building a third runway at Heathrow to investing in the skills of the future.”

Tom Crotty, Group Director of Ineos and Chair of CBI Manufacturing Council, said:

“Improvements in order books and strong output growth are good news for UK manufacturers, particularly after the slowdown that we had seen since the beginning of the year.

“But uncertainty remains elevated, from both Brexit and anti-global trade rhetoric. It is becoming increasingly important for the Government to provide more clarity to UK businesses so that they can better compete at home and globally.”

Key findings:

• 33% of manufacturers reported total order books to be above normal, and 20% said they were below normal, giving a balance of +13%
• 20% of firms said their export order books were above normal, and 11% said they were below normal, giving a balance of +9%
• 43% of businesses said the volume of output over the past three months was up, and 13% said it was down, giving a rounded balance of +29%
• Manufacturers expect output growth to slow slightly in the coming quarter, with 30% predicting volumes to increase, and 12% expecting a decline, giving a balance of +18%
• 16% of companies expect average selling prices to increase in the coming three months, with 3% predicting a decline, giving a balance of +13%
• 16% of firms said their present stocks of finished goods are more than adequate, whilst 8% said they were less than adequate, giving a balance of +8%.