Manufacturing growth falls as demand at home and abroad weakens - CBI
Manufacturing production edged downwards during the three months to October, marking the first decline in the last two years, according to the CBI Quarterly Industrial Trends Survey.
Despite this, firms have signalled that they expect overall conditions to stabilise over the next quarter.
New export orders fell at the fastest pace in three years, possibly down to the continued strength of Sterling. Total new domestic orders reduced over the quarter for the first time since April 2013 and manufacturers’ optimism about both their business situation and export prospects for the year ahead fell to the greatest extent since October 2012.
Total unit costs stabilised over the three months to October, but output prices fell further and are expected to do so again over the next three months.
The 463 manufacturers surveyed predict that overall manufacturing conditions will stabilise in the next three months, with a small rise in output, although export new orders are expected to edge down slightly further.
Firms highlighted concerns about political and economic conditions abroad and their impact on export orders. Worries about price competition rose and the number of manufacturers citing uncertainty about demand as a constraint on investment was the highest in two years.
Rain Newton-Smith, CBI Director of Economics, said:
“Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth. But now they’re also facing pressure back home as domestic demand is easing.
“While on balance firms expect orders to stabilise next quarter, it’s disappointing that firms are having to scale back their investment in innovation.
“Over the longer term, strong investment in innovation and skills is vital to boosting our performance in exports, enhancing our manufacturing growth and improving productivity. It’s crucial that Government acts decisively to protect spending in these areas as part of the upcoming Comprehensive Spending Review.”
Investment intentions for the year ahead for “tangibles” - buildings and plant and machinery - remained unchanged from October. However, intentions for investment in ‘intangibles’ - training and product and process innovation - fell to their lowest levels since July 2011 and July 2009 respectively.
- 22% of businesses reported an increase in total new order books and 30% a decrease, giving a balance of -8%, the lowest since October 2012 (-13%).
- 20% of businesses reported an increase in domestic orders, with 31% noting a decrease. The balance for domestic orders (-11%) was below the long-run average (-5%), the lowest since April 2013 (-14%).
- 15% reported an increase in export orders, with 33% signalling a decrease. The resulting balance for export orders (-17%) signalled a faster decrease in orders than the historic average (-7%). This marks the lowest rate since October 2012 (-17%).
- 20% of manufacturers said headcount was up, and 16% said they were down, giving a balance of +3%, down from +10% in July – the lowest since January 2013 (+2%).
- 18% of firms reported a rise in output volumes, and 23% a decrease, giving a rounded balance of -4%, below the average of +1%. This marks the fastest fall since 2009.
- Manufacturers’ investment intentions for the year ahead were broadly unchanged for buildings (–balance of -15%) and plant and machinery (unchanged at -3%). Product and process innovation investment intentions softened (to +4%, from +17%) and plans for spending on training and retraining also eased (to +9%, from +22% - their lowest levels since July 2009 and July 2011 respectively (-12% and +3%).
- Competitiveness abroad deteriorated with a third-consecutive large fall in competitiveness in the EU (balance of -19%).
- Competitiveness outside the EU also fell (-15%), at the fastest pace since January 2007 (-18%).
- Firms with present capacity at least adequate to meet expected demand edged up (92% of firms) above the long-run average (89% of firms), the highest since July 2013 (+96%).
- Optimism about the business situation decreased (-12%) and sentiment about export prospects for the year ahead also fell (-14%), the lowest since October 2012 (-12% and -19%).
- The proportion of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months fell (to 26%, from 34%), but cited price competition as a slightly greater constraint (to 54%, from 50%)
- The proportion of firms citing uncertainty about demand as a constraint on investment was the highest in two years (55%) – the highest since October 2013 (+59%).
Key findings – next quarter
- 21% of manufacturers expect total new orders to increase, and 20% expect them to decrease, giving a balance of +1%, the lowest since January 2012 (-2%).
- Domestic orders are also expected to stabilise (19% expect an increase, and 19% a fall, giving a rounded balance of -1%), but new export orders are expected to continue falling (19% expect an increase, and 24% a fall, giving a rounded balance of -5%), the lowest since January 2012 (-3%).
- 22% of firms anticipate a rise in output volumes, and 18% a fall, giving a rounded balance of +5% - the lowest since October 2011 (-11%).
- 15% expect employment to increase, and 23% expect it to decrease, giving a balance of -8% - the lowest since July 2011 (-10%).