Early signs of a turnaround in manufacturing activity
Manufacturing activity remained weak in the three months to February, with output volumes falling for a fifth rolling quarter in a row, albeit at a slower pace than in January. That’s according to the latest CBI monthly Industrial Trends Survey.
The survey of 318 manufacturing firms reported that both total and export order books improved slightly, to their strongest positions in six months – in particular, export order books are now in line with their long-run average.
However, output volumes fell in the three months to February, at only a slightly slower pace than in January. Output rose in only five out of 17 sub-sectors, with the headline drop in output primarily driven by the food, drink & tobacco and mechanical engineering sub-sectors. But manufacturers expect output to recover somewhat in the three months ahead, with predictions for growth improving for the second successive survey.
Businesses surveyed also stated that stock adequacy was roughly in line with its long-run average, having fallen back from the highs seen over the course of the last year. Output prices are expected to remain broadly unchanged in the next three months.
Alpesh Paleja, CBI lead economist, said:
“It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it’s probably still too early to say whether we’ve seen the end of the slowdown in the sector. Notwithstanding improving optimism, the sector is still grappling with longer-term uncertainty over the UK’s future relationship with the EU.
“While the government makes progress on new trading arrangements, the upcoming Budget offers a real opportunity to support manufacturers. Measures such as by reforming business rates, increasing the R&D tax credit, and creating catapult quarters for high-tech research hubs present a real opportunity to shore up competitiveness, both in manufacturing and in the wider economy.”
Tom Crotty, croup director of INEOS and chair of the CBI Manufacturing Council, said:
“The beginning of 2020 seems to have seen an improvement in UK manufacturing activity following a difficult 2019. Nevertheless, there can be no doubt that this progress is fragile and the new-look Cabinet must therefore waste no time in working with manufacturers to tackle long-standing challenges and seize opportunities for growth.”
Key findings:
- 15% of manufacturers reported total orders books to be above normal while 33% reported them as below normal, giving a balance of -18%. This remains below the long-run average (-13%).
- 16% of firms said their export order books were above normal while 32% said they were below normal, giving a balance of -17% – in line with the long-run average (-17%).
- 25% of businesses said that the volume of the output over the past three months was up, while 36% said it was down, giving a balance of -11%.
- Manufacturers expect output volumes to recover in the next three months (+8%).
- 18% of firms said their present stocks of finished goods were more than adequate, while 3% said they were less than adequate, giving a balance of +15% – roughly in line with the long-run average (+13%).
- Average selling prices for the next three months (-2%) are expected to be broadly unchanged.
