CBI report urges cut in interest rates to halt slide in manufacturing

The CBI will today step up pressure for a cut in interest rates after publishing a report showing total manufacturing orders falling at the fastest rate for four years.

The Confederation of British Industry (CBI) will today step up pressure for a cut in interest rates after publishing a report showing total manufacturing orders falling at the fastest rate for four years.

The CBI’s Quarterly Industrial Trends survey, published today, shows that the latest decline in orders has been driven by a sharp deterioration in domestic demand.

This, according to the CBI, suggests the weakness in global trading conditions that caused the manufacturing recession is spreading to the home market where orders are now falling at the fastest rate since April 1999.

The survey also shows a third consecutive decline in manufacturers’ confidence, which has been partly attributed in part to the war in Iraq.

Total orders fell faster than expected over the past four months. Thirty-seven per cent of firms reported a fall, while 16 per cent saw a rise. The difference between the two gives a negative balance of minus 21 per cent compared with minus nine per cent in the January survey. Total orders are expected to continue falling sharply over the coming months.

The fall in domestic orders was greater than expected as indicated by a negative balance of minus 23 per cent compared with minus 13 per cent in the January survey.

Export orders declined at the same pace as reported in January, the sharpest rate for a year.

This weak trend in orders led to an unexpected, further drop in manufacturing output over the past four months. The trend is expected to continue with respondents to the survey now predicting a decline in output for the first time in a quarterly survey for over a year.

‘The end of the Iraq conflict will steady nerves. But the world’s economic problems were there before the war and they are still there now,’ said Digby Jones, CBI Director-General. ‘Manufacturers hoped that domestic demand would hold up until there was a pick up in global trade but that does not seem to be happening.

‘This has been compounded by a slowdown in other parts of the economy, most worryingly in consumer spending. It would be wrong to overstate the situation – we are not predicting a recession at all. But the time has come for another cut in interest rates to see us through this difficult patch. The prospects for a sustained recovery appear a long way off and signs of inflation in the wider UK business sector are rare.’

Seventy per cent of respondents report that they are working below capacity. This compares to 74 per cent in January, which was the highest for 20 years.

The pace of redundancies and other job losses over the next four months is expected to accelerate to the fastest rate for a year, following another significant decline over the past quarter.

Costs rose slightly over the past four months, probably reflecting the war premium on oil. However firms continue to lack pricing power and profit margins remain under pressure as a result.

A statement from the CBI concludes that firms will continue to report intended cuts in capital expenditure over the next 12 months, largely due to over capacity, demand uncertainty and pressure on profit margins. Planned investment on innovation and training is flat following the modestly positive intentions reported in the previous survey.

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