UK manufacturing orders fell in the three months
to October, while output was flat, the CBI, Britain's leading business lobby
group, said today.
However, expectations for both orders and output over the next three months are
for moderate growth, while the employment and investment picture remains
Of the 395 manufacturers responding to the latest
CBI quarterly Industrial Trends Survey, 25% said output rose, while 28% said it
fell. The resulting balance of -3% is the lowest since October 2009 (-8%), and
disappointed expectations of growth (+11%). However, over the next three months,
manufacturers do expect a moderate recovery in output, with a balance of +12%,
which, if realised, would be the strongest growth since the three months to
The volume of total orders fell unexpectedly over
the last three months, with both domestic orders (-10%) and export orders (-17%)
dropping below their long-run averages (balances of -7% and -8% respectively).
Nonetheless, expectations for the coming three months have not been dented by
these results: expectations for domestic orders growth remain unchanged relative
to the previous quarter (+4%), while export orders are once again expected to be
broadly flat (+2%).
However, the survey suggests that concerns about
political and economic conditions abroad have risen. The proportion of firms
citing this as the factor most likely to limit export orders increased from 25%
in the three months to July to 34%, well-above the long-run average of 22%.
In line with somewhat softer activity, optimism regarding the business situation
and export prospects for the year ahead both deteriorated (-12% and -19%).
Furthermore, concern grew over orders and sales acting as a constraint on output
in the coming three months (cited by 74% of firms, compared to 62% in the three
months to July).
However, other indicators in the survey held up
somewhat better. Numbers employed rose for the ninth-consecutive quarter (+5%),
the longest run of rising headcount in the quarterly survey’s history (since
On the whole, investment intentions for the year
ahead also saw a small improvement. In particular, a balance of +22% of
respondents intend to invest more in product and process innovation compared to
the previous 12 months, while +14% are planning to increase spending on training
and retraining. Even though firms still plan to spend less on buildings and
plant & machinery relative to the past 12 months (with balances of -12% and -4%
respectively), investment intentions for this category have not deteriorated any
further from the previous quarter.
Anna Leach, CBI head of Economic
Analysis, said: “Domestic and overseas demand have
both slipped unexpectedly this quarter, while output growth has tailed off.
Sentiment regarding business conditions has also fallen back, particularly for
exports. UK companies are increasingly concerned by political and economic
conditions abroad, whether it is ongoing weakness and uncertainty in the
Eurozone or the approaching fiscal cliff in the US.
“Nevertheless, underlying conditions seem relatively stable in this survey.
Employment has continued to rise, investment intentions remain reasonably
healthy, and expectations for output and orders have held up.”
Stocks of finished goods rose in the past three months (+10%) for the third
quarter in a row, ahead of expectations that they would be flat (0%). They are
expected to fall in the next quarter (-7%).
Average unit cost growth rebounded this quarter (+20%), following last quarter’s
eight-year low (0%). Growth in unit costs is expected to moderate somewhat in
the next three months (+11%).
Despite the solid rise in costs, manufacturers’ export prices fell (-11%) in
line with their long-run average rate (-9%), while domestic prices were broadly
flat (-3%), suggesting a renewed squeeze on margins. In the coming three months,
firms expect domestic price inflation to pick up (+7%), while export prices are
expected to continue to edge down (-6%).
Elsewhere, spare capacity increased a little over the past three months, with
57% of manufacturers working below capacity compared to 52% in July.
Furthermore, expanding capacity has fallen back as a motivation for investment
in the year ahead (cited by 35% of respondents, compared to 42% in July), with
firms increasingly looking to improve the efficiency of their operations (64%),
and replace equipment (52%).
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