Exports decline weighs on manufacturing growth - CBI
Domestic orders remain healthy
The recovery in British manufacturing continued in the three months to October, but the pace of growth slowed as new export orders declined, according to the latest CBI Quarterly Industrial Trends Survey.
The survey of 448 firms reported sustained above average growth in orders and output volumes. Yet the pace of growth for both in the last three months was the slowest for a year. The rate of expansion in domestic new orders eased a little, and export orders experienced their first decline in a year and a half.
Despite this, numbers employed in the manufacturing sector continued to grow at a strong pace.
Firms anticipate continued growth for the next three months, but there are reduced expectations for total new orders and exports growth.
Looking to the year ahead, manufacturers’ plans for investment in buildings slipped to their weakest in a year, but in plant and machinery, and product and process innovation, they stayed well above average.
The proportion of firms concerned that political and economic conditions abroad may limit export orders remained above its long-run average for the second successive quarterly survey.
Rain Newton-Smith, CBI Director of Economics, said:
“It’s disappointing that a sluggish exports market has taken some of the steam out of manufacturing growth, which was going from strength to strength throughout most of this year.
“However, growth in orders and output is expected to continue ahead, albeit with expectations moderating, and domestic orders have continued to rise at a healthy pace. And it is encouraging that job numbers are growing.
“Nevertheless, the manufacturing sector is clearly facing headwinds. Global political instability, mounting concerns about weakness in the Eurozone and recent rises in Sterling are all weighing on export demand.”
Key findings – three months to October 2014
- 31% of businesses reported an increase in total new orders, and 21% a decrease, giving a rounded balance of +9%. This was above the long run average of -2%
- The balance for new domestic orders (+14%) was also well above the long run average (-5%)
- The balance for export orders (-7%) and export deliveries (-5%) both dropped to their lowest levels since January 2013 (-13% and -7% respectively)
- 27% of manufacturers said employment numbers were up, and 12% said they were down, giving a balance of +15%
- 21% of firms said they were more optimistic about the general business situation than three months ago, and 13% less, giving a balance of +8%
- 26% reported a rise in output volumes, and 15% a decrease, giving a balance of +11%
- Domestic and export price inflation remained very subdued this quarter (-4% each). Unit costs were broadly flat (+1%)
- Manufacturers’ investment intentions compared to the previous twelve months slipped slightly for plant and machinery (+5%) and product and process innovation (+25%). They remained the same for training (+27%) but fell to their weakest level in a year for buildings (-14%)
- The number of firms working below capacity rose above half (51%) for the first since April 2013 (59%)
- The number of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months eased back from last quarter’s record high (39%), but remains elevated (37%).
Key findings – next quarter
- 29% of manufacturers expect total new orders to increase, and 9% expect them to fall, giving a rounded balance of +20%, the lowest since October 2013 (+14%)
- A balance of +19% expect new domestic orders to rise (27% expect an increase, and 8% a fall), and +9% expect new export orders to go up (17% expect a rise, and 8% a fall)
- 27% of firms anticipate a rise in output volumes, and 8% a fall, giving a rounded balance of +18%
- 19% expect employment to increase, and 12% expect it to decrease, giving a balance of +7%
- At -3%, expectations for growth in domestic price inflation remain subdued. Unit costs are expected to remain flat (-1%).
Separately, the CBI published monthly figures for October, which showed that total order books among manufacturers edged down to -6%, the lowest level since July 2013 (-12%). Export order books also remained weak relative to earlier in the year (-23%), but output grew (+11%).