The UK manufacturing recovery is
well on track, driven primarily by export orders, the leading business lobby
group, the CBI, said today.
Manufacturers saw output and
orders growth pick up over the past three months, and expect another solid
rise in production during the next quarter.
But prices for finished goods
rose markedly, and an even faster increase is predicted over the next
quarter, as manufacturers look to pass on higher raw material costs.
Of the 394 manufacturers that
responded to the January Quarterly Industrial Trends Survey, 32% had seen an
increase in output over the past three months, while 16% said that it had
fallen, giving a balance of +16%, compared with +9% in October. This was
driven primarily by growth in export orders (+13%), with domestic demand
rising more modestly (+9%). Domestic demand growth was, however, stronger
than had been anticipated in October (+2%).
Over the next three months,
output is expected to grow at a similar pace again (+17%), driven primarily
by another strong rise in export orders, with a balance of +18% of firms
expecting export orders to increase. Domestic orders are expected to be
broadly flat (-3%). When asked about likely output constraints over the next
quarter, fewer companies cited orders and sales (68%), the lowest since July
Manufacturers have raised output
prices markedly during the last quarter. Both average domestic and export
prices rose at the fastest pace since October 2008 (balance of +13% and +14%
respectively). Looking to the next quarter, price increases are expected to
accelerate sharply: a balance of +31% of firms expect domestic prices to
rise alongside +34% for export prices. The latter balance is the highest
since January 1995 (+34%).
This acceleration in output
prices reflects the fourth successive quarterly rise in average unit costs
(+26%), with cost pressures expected to continue to rise at a similar pace
over the next three months too.
The jobs situation continued to
improve as +8% of firms said that staff numbers had risen in the past three
months, the second consecutive quarter in which this survey balance was
positive. But manufacturers expect little change in headcount over the next
In line with the strengthening
in orders and output, sentiment has also improved. A balance of +7% of firms
said that they are more optimistic about the business situation than three
months ago, while +18% were more optimistic regarding export prospects for
the year ahead.
Ian McCafferty, CBI Chief
Economic Adviser, said: “The recovery in the manufacturing sector is
firmly in place and looks set to continue. Production has been boosted this
quarter by a strengthening in both domestic and overseas demand and, over
the next three months, companies expect further growth, driven by another
rise in export orders.
“It is also encouraging to
see that employment prospects in the sector have risen for the second
consecutive quarter and manufacturers’ confidence is improving.
“But manufacturers have come
under intense pressure to pass on rising costs: they have increased prices
markedly in this quarter, and expect to raise them at an even faster pace
over the next three months. This will drive further inflationary pressure in
the wider economy.”
In line with the improving
demand outlook, manufacturers’ investment intentions have strengthened.
Investment in plant & machinery is expected to increase over the next twelve
months for a balance of +10%, and companies also plan to spend more on
training and retraining (+19%), and on product and process innovation (+22%)
over the coming year. Compared to the previous year, firms no longer plan to
reduce their capital expenditure on buildings over the next year, with the
survey balance (+1%) the highest since July 1997 (+2%).
The improving outlook for
investment is driven by a pick-up in capacity utilisation and less stringent
The number of firms working
below capacity has fallen (59%) compared with October (64%), and is now back
in line with its long-run average. In addition, significantly more firms
plan to expand capacity through investing more over the coming year (41%).
Financial constraints to
investment are easing. The number of manufacturers citing inadequate net
returns as a factor likely to limit capital expenditure over the next year
fell from 37% in the previous two quarters to 28%, the lowest since the
series began in October 1979. Fewer firms highlighted internal finance
shortages as a factor expected to restrict expenditure. In addition, credit
and finance was highlighted by half as many manufacturers as a likely
hindrance, compared with the October survey.
Monthly data from the survey
showed that 21% of manufacturers said that total order books were above
normal, while 37% said that they were below. The resulting balance of -16%
is down on December (-3%), but is still slightly above its long-run average.
Overseas demand remains stronger however, with export order books reported
to be in line with par (0%), albeit down slightly from December (+4%).
The January 2011 CBI Industrial Trends Survey was conducted
between December 9, 2010 and January 6, 2011. 394
manufacturing firms replied. During the survey period the pound averaged €1.18
and $1.55, while Brent Crude averaged $93.05 per barrel, compared with euro 1.16
and $1.58,and $81.11 per barrel in the October survey period.