The latest CBI’s quarterly Industrial Trends Survey shows new manufacturing orders falling slightly in the first quarter with output increasing and firms expecting orders to grow in the next three months.
According to the CBI, the decrease in total new orders was driven by a fall in domestic demand this quarter, the fastest pace of decline since January 2012, whereas export orders stabilised.
However, manufacturers have increased their stocks of work in progress and finished goods. This was most likely in anticipation of a better coming quarter, with expectations for total orders growth at the strongest level for a year. Meanwhile output is also expected to rise and manufacturers’ optimism has improved.
Employment in the sector increased in-line with expectations in the three months to April, and manufacturers expect to increase their headcount in the next quarter.
Contrary to expectations, domestic price inflation was unchanged on the quarter, but growth in average unit costs was the highest since January 2012, squeezing manufacturers’ profit margins again.
However, weaker sterling meant that the number of businesses citing prices as a factor likely to limit export orders fell to the lowest level since April 2012. At the same time, concern about the effect of political and economic conditions abroad on exports rose to its highest for a year.
Commenting on today’s results, James Buckle, Global Corporates manufacturing team at Lloyds Bank Commercial Banking, said, ‘While the increase in output is welcome, inflationary pressures on unit costs and poor domestic orders continue to pose a challenge for the prospects of the UK manufacturing sector.
‘Given the sustained fall in domestic demand, it is important for UK manufacturers to continue redirecting output towards higher growth markets, but this may take some time. Effective risk management against exchange rate volatility and associated input costs will continue to be of paramount importance to the sector.’
Key findings – three months to April:
- 22 per cent of firms reported an increase in total orders and 28 per cent said they decreased, giving a balance of -6 per cent – disappointing expectations of growth (+14 per cent) in the previous survey, but nonetheless above the long-term average (-3 per cent).
- The balance for domestic orders (-14 per cent) was the lowest since January 2012 (-17 per cent), while the balance for exports orders (-3 per cent) was the highest since April 2012 (+4 per cent).
- The proportion of firms reporting that they were working below capacity (59 per cent) was at its highest since January 2011 (59 per cent).
- However, 23 per cent of firms reported an increase in output and 18 per cent said it decreased, giving a balance of +5 per cent.
- Manufacturers said they were slightly more optimistic about their business situation than in the previous quarter (+5 per cent).
- Numbers employed in the manufacturing sector increased (+10 per cent).
- A balance of +18 per cent of manufacturers expect total orders to increase, with +19 per cent expecting export orders to rise and +8 per cent predicting growth in domestic orders.
- A balance of +23 per cent of firms expect output to increase – the highest level since April 2012 (+24 per cent).
- A balance of +8 per cent of manufacturers expect to increase headcounts.