Orders fall as costs rise

Manufacturing orders fell further below normal in June, with order books at their weakest since October 2003, according to the CBI’s monthly Industrial trends Survey, published today.

Cost pressures remain intense. Oil prices have risen by more than two dollars a barrel since the previous survey, which is 46 per cent higher than a year ago. Metal prices are also 17 per cent higher than the corresponding period last year.

The pressure on profit margins is expected to intensify as firms doubt that they will be able to pass on cost increases to their customers. Domestic prices are expected to fall over the coming quarter, with expectations at their weakest since March 2004. Prices are expected to return to the downward trend of the past seven years, following an 18-month pause.

The survey shows 39 per cent of firms reporting their order books are below normal, while 14 per cent say they are above normal. The negative balance of minus 25 per cent is the weakest since October 2003. Over the past three months the balance has averaged minus 24 per cent in contrast to an average of minus eight over the previous 12 months.

Export order books also remained well below normal, broadly in line with the average over the past ten months. Stocks of finished goods remained stable in June, however they remain significantly higher than the average over the past year.

With demand continuing to weaken, and stock levels relatively high, manufacturers reined back their output expectations for the fourth successive survey. Over the next three months 28 per cent of firms expect output to fall while 24 per cent expect it to rise. The negative balance of minus five is the weakest since December when it was minus six.

Nick Brayshaw, Chairman of the CBI Manufacturing Council, commented: “Demand is subdued across the manufacturing sector with all the main industry groups reporting that order books are below normal. Manufacturers are facing a further squeeze on profit margins over the next three months as they remain unable to pass on costs incurred from rising prices of oil and metals.”