Hopes that manufacturing is on the brink of recovery have been dashed by another decline in orders and output. The CBI’s Quarterly Industrial Trends survey shows confidence falling for the first time since January, prompting firms to cut investment and jobs.
The employers’ organisation chose not to call for an immediate cut in interest rates in face of the continued uncertainty about the health of the international economy and the recent tick upwards in underlying retail price inflation. But it signalled that a half-point reduction might become necessary should economic conditions worsen further in coming months.
The survey says 18 per cent of firms saw a rise in total orders in the four months to October, while 34 per cent recorded a fall. The balance of minus 16 per cent compares with minus 11 per cent in the July survey, suggesting the decline in output continues. In July, respondents expected output to rise in the four months to October, by a balance of plus seven per cent.
Manufacturers also said the six-year decline in export orders gathered momentum following the more moderate falls recorded earlier this year.
As a result, 34 per cent of firms felt less optimistic about the business situation than four months ago, while 15 per cent were more optimistic. The balance of minus 19 per cent compares with plus four per cent in July and plus 21 per cent in April. But companies again expect orders and output to increase over the next four months.
Doug Godden, CBI Head of Economic Analysis, said: ‘Manufacturers had hopes that life was going to get easier but instead it has become tougher. Economic conditions in the US and Germany are particularly uncertain, and were they to worsen, the UK economy would need further help to prevent a sharp slowdown next year.
‘The Monetary Policy Committee faces a difficult decision. Underlying inflation and the current strength of the housing market need careful handling. It would not be helpful for a decision to cut interest rates to be made and then swiftly reversed. But if economic conditions continue to weaken over the next few months, CBI members would look for a decisive cut of half a percentage point.’
The survey shows prices falling last quarter, outstripping expectations for the second consecutive survey. Manufacturing prices have now been falling for over six years.
Firms plan to cut investment in buildings, plant and machinery at a significant rate over the next twelve months, maintaining a four-year trend of planned reductions. Projections for spending on innovation over the next twelve months remained mildly positive for the third consecutive survey, while training expenditure is expected to remain flat.