The CBI said there are tentative signs of a manufacturing recovery in the UK but cautioned that it is too early to say whether firms ‘have really started to turn the corner’.
Publishing its quarterly industrial trends survey yesterday, the UK employers’ body said that the mood among manufacturers had brightened a little since the Spring. New orders are now expected to stop declining, even though the past three months were disappointing, with output cut yet again.
The survey of 836 firms shows 18% were more optimistic than three months ago, while 25% are less optimistic. The balance, although still negative at -7%, is the least negative since July 2002, and compares well with the sharp deterioration seen in the Spring.
Total new orders have fallen throughout this year, but the decline is expected to come to an end over the coming three months. 20% of respondents expect orders to go up and the same proportion expect them to go down. Orders are perceived as less of a restraint to future output than earlier in the year, cited by 76%, the lowest number since January 2001.
Signs of a global economic recovery are yet to feed through to export orders, which have fallen at the same rate for the past year. However, export optimism is less negative than at the beginning of the year as firms do not expect export orders to fall as fast over the coming quarter.
Output fell again over the past three months as the decline in orders continued. As a result, 68 % of firms say they are working below capacity and 91% say that capacity is adequate to meet demand in the year ahead. However, manufacturers do not expect this significant decline in output, seen during this year, to continue.
Ian McCafferty, CBI Chief Economic Adviser, said: ‘Evidence that optimism among manufacturers is less negative than in the Spring suggests that the mood is lightening slightly, but previous expectations of improvement have been dashed several times over the past 18 months.
‘CBI member firms are unsure about the health of the international economy, suggesting the UK recovery will remain fragile for sometime. Overall, this is an encouraging survey but it is too early to say whether firms have really begun to turn the corner.’
Investment intentions remain negative but plans for plant and machinery are the least negative in over a year, with uncertainty about demand easing as an expected investment constraint. There is also an increase in firms expenditure on training and retraining over the coming 12 months as compared with the last year.
The survey shows a minor slowdown in the decline in employment but there is no sign of a real change in the trend with job numbers expected to fall again in the coming months. A lack of orders remains the most significant factor limiting output, this has eased since the July survey. Skill shortages are on the increase, but are still a problem for only 12% of manufacturers.
Domestic prices continued to fall but at a slightly slower rate than in the previous survey period. An increase in unit costs are considered to be a one-off. The rises were heavily concentrated in the motor vehicles and food sectors, keeping pressure on profit margins.