Expectations for selling price inflation fall to their lowest in more than two years - CBI Industrial Trends Survey

Sentiment among manufacturers deteriorated and output volumes fell moderately in the three months to May, according to the CBI’s latest Industrial Trends Survey.

Total order books were reported to be below normal, to a broadly similar extent as in April. Export order books were also seen as below normal, but to a greater extent than last month. 

Manufacturer’s expectations for selling price inflation were at their softest for over two years in May, but they remain above their long-run average. 

The survey, based on the responses of 236 manufacturing firms found: 

• Manufacturing output volumes fell modestly in the three months to May (weighted balance of -10%, from -15% in the three months to April) and are expected to fall moderately again in the three months to August (-5%), ending four consecutive months of positive expectations.

• Output fell in 9 out of 17 sub-sectors in the three months to May. The decrease was driven by the motor vehicles & transport equipment, chemicals, and food, drink & tobacco sub-sectors. 

• Total order books were reported as below “normal” in May, to a broadly similar extent as in April (-17% from -20%) and were marginally weaker than the long-run average (-13%). Export order books were also seen as below normal, but to a greater extent than last month (-26% from -9%) and were also below average (-18%). 
• Expectations for average selling price inflation eased marginally in the three months to May (+21%, from +23%) to their lowest since March 2021. Although expectations for selling price inflation were comfortably below the multi-decade high seen in 2022 (+80% in March 2022), they remain well above the long-run average (+6%). 
• Stock adequacy eased in May (+10% from +19% in April) but, remained broadly in line with its long-run average. 
• Business sentiment deteriorated in the three months to May (-10% from -2%), meaning that sentiment has been declining since January 2022. 

Anna Leach, CBI Deputy Chief Economist, said:

“Our latest survey suggests the recent pressures on manufacturing activity have so far persisted through the second quarter. Sentiment continues to deteriorate and expectations for output growth in the coming three months have turned negative, which doesn’t suggest UK manufacturing is poised to recover any significant momentum in the near-term.

“With demand subdued and the outlook for costs improving, manufacturers expect growth in their selling prices to slow, which should feed through to measures of inflation over time.”