Slow recovery

The contraction in manufacturing output is easing, but a return to growth could still be some way off, according to the latest quarterly CBI Industrial Trends Survey.

The volume of manufacturing output continued to fall in the three months to July, with 43 per cent of firms saying it declined, and just 12 per cent of firms saying it rose, giving a balance of -31 per cent, a slower rate of decline than the previous three months, when the balance was -53 per cent.

However, a return to growth could still be some way off, with expectations for the coming three months remaining negative.
Manufacturing firms have run down their stocks even more aggressively over the past quarter, with stocks of finished goods reduced at the fastest rate in the 51-year history of the survey. Despite this rapid rate of destocking, firms plan to reduce their finished-goods inventories at a similarly sharp rate next quarter.
Export demand was also disappointing despite the relative weakness of sterling, which makes British goods cheaper for foreign customers. The balance reporting a fall in export orders over the last three months was -38 per cent, compared with -39 per cent the previous quarter, and expectations last quarter of -18 per cent.
The sharp fall in export orders came despite firms cutting prices in foreign markets. The balance for export prices was -26 per cent, from -10 per cent last quarter, compared with a balance for domestic prices of -20 per cent from -17 per cent.
The survey also showed that employment in the sector is continuing to fall sharply. 47 per cent of firms reduced numbers employed and just six per cent increased, giving a rounded balance of -42 per cent.
Ian McCafferty, chief economic adviser at the CBI, said: ‘These figures reinforce our view that the road out of recession will be long and slow. The further sharp decline in export orders is of particular concern as we are not seeing much of a boost from the relative weakness of sterling. There are also further indications that the inventory cycle may not be turning as quickly as many had hoped, with some manufacturers still having excess stocks of goods.’
Capital investment plans for the year ahead continue to be scaled back at a rapid pace. However, the cutbacks to planned investment in product and process innovation, and training and re-training have slowed significantly since April.