Manufacturing output eases, but investment intentions recover

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Growth in manufacturing output and orders eased in the quarter to July, but investment intentions improved according to the latest CBI/Accenture Quarterly Industrial Trends Survey.

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The report showed that growth slowed to more typical rates of expansion following a period of ‘exceptionally strong’ growth over the previous year. Average costs and prices continued to rise sharply, with similar rates of cost and price inflation expected next quarter.

Optimism within the sector fell for a third consecutive quarter, but investment intentions generally improved and employment within the sector continued to grow, though less quickly than expected last quarter (for the third quarter running). Concerns over shortages of labour and shortages of components and materials remained acute.

“There are strong signs that manufacturers are pursuing long-term strategies to see themselves through current volatility with investments in their people, plants and machinery,” said Maddie Walker, head of Industry X in the UK at Accenture

“Rather than pull back on innovation, investing in technology will help to improve productivity, keep costs down, and unlock new ways to make products more effectively.”

Based on the responses of 237 manufacturing firms, the survey found that business sentiment fell -21 per cent, from -34 per cent in the quarter to April. 

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Output volumes in the quarter to July grew at the slowest pace since the quarter to April 2021 (balance of +6 per cent, compared with +25 per cent in quarter to June and a long-run average of +4 per cent) with a similar growth rate expected in the three months to October (+6 per cent).

Average costs in the quarter to July increased at a slightly slower pace compared with the previous quarter, but growth remained well above average (+82 per cent, compared with +87 per cent in April; the long-run average is +31 per cent). Cost growth is expected to slow a little further in the quarter to October (+77 per cent), while prices are expected to rise at a similar pace as in the last quarter (+48 per cent).

Investment intentions for the year ahead picked up in comparison to April for plant & machinery (+17 per cent from +9 per cent), product & process innovation (+10 per cent from +1 per cent) and training (+10 per cent from -3 per cent). Investment in buildings is expected to fall slightly (-7 per cent from -6 per cent, though remaining above the long-run average of -17 per cent).

Numbers employed grew at a similar rate to the previous quarter (+18 per cent from +21 per cent), with a similar increase rate expected in the next three months (+19 per cent).

Anna Leach, CBI deputy chief economist, said that while conditions are becoming more uncertain for a sector already buffeted by high-cost inflation and ongoing supply challenges, the firming investment intentions are encouraging.

“Stronger investment will be vital if the UK is to reinvigorate growth and keep recession at bay,” Leach said. “The new prime minister will need act quickly to fan the flames of these ambitions by announcing a permanent successor to the Super Deduction and urgently reforming an outdated business rates system that currently acts as a tax on investment.”