Manufacturers’ orders and output fell faster than had been expected over the past three months, according to the CBI‘s quarterly Industrial Trends Survey, published today.
The survey shows that July’s unexpected pick-up in export orders was not sustained, but the greatest deterioration was in domestic orders, a result of continued weakness in consumer spending.
Profit margins continued to be squeezed as costs increased and more firms cut prices than increased them. A further slide in business optimism has weakened investment decisions, with expenditure on both plant and machinery and buildings expected to decline over the coming year.
Thirty-four per cent of firms saw the volume of total new orders decrease over the past three months, while 20 per cent saw an increase. The balance of minus 14 per cent shows a faster rate of decline than in the last quarter (-7 per cent) disappointing previous expectations (-2 per cent).
Domestic orders declined at the fastest pace for two years with 35 per cent of firms reporting a fall over the past three months and 12 per cent an increase. The balance of minus 23 per cent compares with minus 16 per cent in the July survey.
Export orders fell in the past three months with 30 per cent of firms reporting a fall in orders while 17 per cent reported a rise. This negative balance of minus 13 per cent contrasts with the unexpected pick-up recorded in the previous quarter which saw a balance of plus nine per cent.
Output declined over the past three months, disappointing expectations for a modest increase. Looking ahead, output is expected to be broadly unchanged over the next quarter. However, since October 2004, manufacturers’ expectations for demand and output have proved too up-beat.
Employment continued to fall over the past three months, broadly in line with expectations. Twenty-nine per cent of firms said employment fell while 20 per cent said it rose giving a balance of minus nine per cent. Manufacturers expect to cut jobs at a slightly faster rate over the next three months.
On a positive note, firms expect a modest increase in spending on training and retraining over the next 12 months.
John Cridland, CBI Deputy Director-General, said: “Today’s results show that manufacturers had another disappointing quarter in what has been a very difficult year. Domestic orders have continued to decline, reflecting the tough conditions prevailing on the high street. Equally disappointing has been the renewed fall in overseas orders.
“Meanwhile, rising raw material and energy prices have continued to push up costs and hit profits. Against this background, firms are cutting back on their investment plans and expect the rate of job losses to increase.”
The Quarterly Industrial Trends survey was carried out between 22 September and 12 October 2005 and 705 manufacturers responded.