Weak domestic demand

A renewed increase in export orders has failed to ease concerns for manufacturers in the face of deteriorating consumer demand at home.


A renewed increase in export orders has failed to ease concerns for manufacturers in the face of deteriorating consumer demand at home, according to the CBI’s monthly Industrial Trends Survey, released yesterday.


Export order books improved following a lull in September and October to reach the best level this year. But total order books remained unchanged since last month, reflecting weak domestic demand.


The survey shows 42 per cent of firms reporting total order books below normal, while 17 per cent say they are above normal – a balance of minus 25 per cent. This is the same balance as October and has remained largely unchanged since the spring.


Export orders were reported as below normal by 34 per cent of firms, while 21 per cent say they are above normal – a balance of minus 13 per cent. This is a significant improvement on the balance of minus 28 per cent in the last survey, and represents a better position than the balances of around minus 17 per cent seen in the spring and summer.


Looking ahead to the next three months, 25 per cent of firms expect an increase in output and 29 per cent a reduction, a balance of minus four per cent. This expectation for a modest fall in output compares with expectations for small increases in each of the previous four months.


Expectations for prices for the next three months are mildly deflationary, with 13 per cent of respondents planning to raise prices but 18 per cent foreseeing a reduction. As a result, profit margins will remain under pressure, even though costs have been helped by a seven per cent drop in oil prices between the October and November surveys.


Ian McCafferty, CBI Chief Economic Adviser, said: “Manufacturers have faced an extremely challenging year and the latest figures show no overall improvement over the last month. Robust demand internationally has lifted the export figures, but this has been offset by a deterioration in domestic orders which is of real concern.


“Over the past month, producers have benefited a little as the cost of oil has slipped back, but manufacturers’ profit margins remain under pressure, with more firms expecting to cut prices than raise them in the months ahead.”


The monthly Industrial Trends survey was carried out between 26 October and 16 November 2005 and 683 manufacturers responded.