Manufacturing orders were flat in the three months to January, while output was stable for the second quarter in a row, according to the Confederation of British Industry (CBI).
Both orders and output are expected to rise moderately over the next three months, and the employment and investment picture continues to look relatively positive.
Of the 389 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 25 percent reported that total new orders had risen, while 28 percent said they fell. The resulting rounded balance of -four percent disappointed expectations of growth (+ eight percent), but the rate of decline in orders was slower than in the previous quarter (-13 percent).
Within total orders, export orders continued to fall for the third consecutive quarter (-13 percent compared with -17 percent in the previous quarter), against expectations that they would stabilise. However, manufacturers anticipate a resumption of growth in export orders in the coming three months (+ seven percent), underpinning fairly robust expectations for total orders (+14 percent).
Output growth underperformed against expectations once again and was broadly flat for the second consecutive quarter (- two percent). Manufacturers expect to raise output in the next quarter (+ eight percent), although this represents the lowest expectation since October 2011 (-11 percent).
Anna Leach, CBI Head of Economic Analysis, says that while domestic demand and business optimism have steadied, export demand remains a concern for manufacturers, with orders continuing to fall, albeit at a slower rate: “There are encouraging signs of stability in overall demand, however, with domestic orders, export orders and production expected to rise in the quarter ahead.”
While optimism regarding the business situation was unchanged (0 percent), firms remained concerned about export prospects for the year ahead (-11 percent). Furthermore, 56 percent of firms cited price competition from overseas competitors as a factor likely to limit export orders in the next three months. This is the highest proportion since July 2008 (58 percent), although still a little below average (59 percent). Concerns around political and economic conditions abroad also remained high (31 percent).
There was an increase in the proportion of firms identifying orders or sales as a factor likely to limit output in the next three months, to 81 percent. This was the highest proportion since April 2010 (82 percent) and is mirrored by manufacturers’ concerns that uncertainty about demand could limit capital expenditure authorisations over the next year (cited by 62 percent of respondents – the highest since April 2009, when it stood at 66 percent).
However, employment and investment indicators in this survey are somewhat better. Numbers employed were flat (+ two percent), beating slightly negative expectations (-four percent) with manufacturers expecting to increase headcount in the coming three months (+13 percent).
Investment intentions for the year ahead for plant and machinery improved on the previous survey. A balance of + six percent of firms expect to spend more in this area, against the long-run average of –nine percent. Meanwhile, the balance of respondents intending to invest more in product and process innovation remained high at +24 percent (long-run average +10 percent).
Domestic prices picked up in this quarter (+seven percent) and the rate of inflation is expected to accelerate further in the coming three months (+21 percent), driven by the food, drink and tobacco sector. However, manufacturers’ export prices fell for the second consecutive quarter (-five percent).
Average unit cost growth saw little change from the last survey (+21 percent from +20 percent), and is expected to continue on this path in the next three months (+23%).
Stocks of finished goods (+ five percent) and raw materials (+four percent) rose a little, but are expected to level off in the next quarter (-one percent and -five percent respectively).