Manufacturers to increase production

Manufacturers plan to increase production over the next three months despite rises in oil prices and increases in interest rates, according to the CBI’s Monthly Industrial Trends survey.

The survey, carried out between 27th July and 18th August 2004, shows that 32 per cent of the 861firms that responded expect volume of output to go up over the next three months, while 13 per cent expect it to go down. The resulting positive balance of plus 19 per cent compares to plus six per cent in July and plus 15 per cent in June.

The positive outlook on production comes after a slight increase in orders in August. Twenty-one per cent of manufacturers said total order books were above normal, and 19 per cent said they were below. The positive balance of plus two per cent compares with minus seven per cent in July, minus six per cent in June and plus one per cent in May.

Export order books improved compared with July, although they remained below normal levels overall. A negative balance of minus eight per cent compares to minus 11 per cent in July, with 19 per cent of firms saying export orders were above normal and 27 per cent saying they were below. Year-on-year, the improvement is more marked as August 2003 saw a negative balance of minus 32 per cent.

Sharp rises in commodity prices have intensified pressure on margins in recent months, with oil prices now having risen by over 40 per cent since the start of the year. However, there are indications that manufacturers are hoping to at least partially offset these costs through price increases.

Expectations for prices were stronger than at any time since January 1997, with a balance of plus 11 per cent of firms saying they expected average prices to increase over the next three months. This compares to plus six per cent in July and minus 14 per cent in August 2003.

Doug Godden, CBI Head of Economic Analysis, commented: “The results show that the manufacturing recovery has so far remained on track and that manufacturers are anticipating reasonably buoyant demand conditions in the months ahead. If their expectations for price increases are achieved, that will help to limit the impact of rising oil prices on profit margins.

“Nevertheless, there is little room for complacency. Future trends in both global demand and energy costs are highly uncertain at present, and manufacturers’ profitability is likely to remain under pressure for a while yet.”

The survey also indicated that stocks are healthy, with 65 per cent of firms reporting that present stocks of finished goods are adequate. Eighteen per cent say stocks are more than adequate, while only eight per cent say they are less than adequate, a positive balance of 10 per cent.

On the web