A further fall in UK orders

Manufacturing orders fell further below normal in August, with order books at their weakest since October 2003, according to the CBI’s monthly Industrial Trends Survey, published today.

The survey shows 42 per cent of firms reporting total order books below normal, while 13 per cent say they are above normal. The negative balance of minus 29 per cent compares with minus 20 in July and is the weakest since October 2003 (- 40).

Export order books also remain well below normal, despite having stabilised over recent months. Thirty-one per cent of exporters report that order books are below normal while 13 per cent say they are above, giving a negative balance of minus 17 per cent.

Cost pressures remain intense. Oil prices averaged almost $62 a barrel in August, fifty per cent higher than a year ago with metal prices up 14 per cent on the same period last year.

The pressure on profit margins is expected to intensify as firms doubt that they will be able to pass on cost increases to customers. Domestic prices are expected to fall over the coming quarter, the fourth consecutive month of negative expectations, which follows a year when expectations were positive.

Despite weak demand and relatively high stock levels reported by manufacturers, output is forecast to remain broadly unchanged across the manufacturing sector as a whole over the coming quarter. Strong output growth expectations occur in only two sectors, food, drink & tobacco, and motor vehicles & transport equipment. The other main industry groups are not anticipating any increase.

Doug Godden, CBI Head of Economic Analysis, said: “Manufacturers are seeing some respite as conditions abroad continue to stabilise. However, the domestic market shows signs of further weakness.

“Looking ahead, we hope that the recent cut in interest rates will underpin consumer and business confidence and allow the economy to gain some momentum. But the various cost pressures facing manufacturers will continue to impede profitability in the sector and will have a knock-on effect on investment and jobs.”