Output falls and UK manufacturers expect to raise prices – CBI Industrial Trends Survey

UK manufacturers remained under significant pressure in the quarter to January, with output and orders declining, capacity utilisation falling and investment plans weak, according to the latest quarterly CBI Industrial Trends Survey. Optimism continued to decline, but manufacturers were their least pessimistic since July 2024.

Manufacturing output fell in the three months to January, and at a slightly faster pace relative to December. The downturn was broad-based across sub-sectors, but driven by the food, drink & tobacco, metal products, mechanical engineering and chemicals sub-sectors. Firms expect output to fall again in the quarter to April, though at a more moderate pace.

The volume of total new orders fell at a similar rate to October – a pace of decline not seen since July 2020. This reflected falls in both domestic and export orders. Levels of total and export order books remain well below their long-run averages. Manufacturers expect new orders to fall further over the next three months, though less steeply than over the past quarter.

Cost pressures remain elevated, though unit costs rose at the slowest pace for over a year in the three months to January. Domestic and export selling prices were broadly stable over the past quarter, but looking ahead manufacturers expect cost pressures to increase over the quarter to April, with domestic and export selling price inflation tipped to accelerate too.

Manufacturers’ investment intentions remained weak. Firms plan to cut spending on buildings, plant & machinery, and training over the year ahead, held back by uncertainty about demand and inadequate net returns. Capacity utilisation fell to its lowest since July 2020, and employment continued to decline with further losses expected into the spring.

Ben Jones, Senior Lead Economist, CBI, said: 

“Manufacturers are finding conditions extremely tough, with output and orders falling again. Many firms report seeing customers delay decisions, order only what they strictly need, or hold back from committing altogether, leaving order books thin and confidence fragile.

"At the same time, cost pressures – from rising wages, high energy prices and taxes – are squeezing margins and weighing on competitiveness, pushing firms to plan price rises even as demand remains subdued.

"The government must now focus on lowering the cost of doing business to unlock investment and growth. Recent pragmatism shown on areas such as day one rights is welcome, but manufacturers want to see the government expedite much needed energy costs support and deliver greater policy clarity more generally.”

The survey, based on the responses of 312 manufacturing firms, found: 

• Business sentiment deteriorated in January, with manufacturers optimism about both the business situation (weighted balance of -19%) and export prospects (-12%) declining. However, these were the least negative figures recorded since July 2024.
• Output volumes fell in the quarter to January, at a slightly faster pace relative to the quarter to December (-25%, from -21% in the three months to December). The decline in output volumes was broad based (14 out of 17 sub-sectors), driven by declines in the food, drink & tobacco, metal products, mechanical engineering and chemicals sub-sectors. Firms expect output to fall again in the three months to April (-14%).
  • The share of firms citing orders or sales as a factor likely to limit output in the next three months was broadly unchanged from October, remaining close to the long-run average (72%, from 73% in October; long-run average of 65%).
  • The share of firms citing a shortage of skilled labour as a constraint on output over the next three months was broadly unchanged (24%, from 25%), but stands at its lowest since the quarter to April 2021. The share of firms citing a shortage of other labour was also stable (11%, from 10%).
  • The share of firms citing credit or finance as a constraint jumped to its highest since July 2020 (9%, from 3%).
  • Whereas the share citing materials or components as a constraint fell to its lowest in six years (11%, from 14%).
• Total new orders fell through the quarter at the fastest pace since July 2020 (-21%, from -20% in October), reflecting declines in both domestic orders (-23%) and export orders (-12%). Manufacturers expect the total volume of new orders to decline again in the three months to April, but at a slower pace (-13%).
• The proportion of firms reporting their current rate of operation as a percentage of full capacity has steadily fallen for five years and now stands at its lowest since July 2020 (72%; long-run average of 80%).
• Investment intentions for the year ahead are weak. Manufacturers expect to reduce investment in buildings (-44%, the lowest since July 2020, from -42% in October), in plant & machinery (-22%, from -46%), and in training & retraining (-17%, from -19%). Investment in product & process innovation is expected to be broadly unchanged over the next 12 months (-3%, from -20%)
  • The main constraint on investment was uncertainty about demand (cited by 63% of manufacturers), followed by inadequate net return (33%), and a shortage of internal finance (19%).
• Average costs rose in the quarter to January at an elevated pace (+33%, from +52% in October; long-run average of +20%). Costs growth is expected to accelerate in the quarter to April (+50%).
• Average domestic priceswere flat, easing from October (+2%, from +12% in October), whereas export prices fell marginally (-4%) for the second consecutive quarter. Both domestic and export prices are anticipated to rise in the next three months (+29% and +22%, respectively).
• Stocks of finished goods fell in the three months to January (-24%, the fastest pace of decline since October 2009), accompanied by falls in stocks of work in progress (-17%) and of raw materials (-9%).
  • Manufacturers expect stocks of raw materials (-16%), of work in progress (-13%) and of finished goods (-12%) to all fall in the three months to April.
• Numbers employed fell in the quarter to January (-16%, from -18% in October). Manufacturers expect another modest fall in employment in the quarter to April (-18%).