Stuck in low gear

The manufacturing recovery has eased from its August peak as orders fall below normal and firms scale back output expectations, according to the CBI.

In the employers’ organisation’s monthly industrial trends report for September, published today, 24% of firms said the level of order books was below normal, 18% said above normal. The negative balance of minus six per cent compares with plus two in August and minus seven in July.

The survey shows export order books deteriorating since late spring signalling that global conditions have become more challenging.

30% of respondents said export order books were below normal, only 16% said they were above normal. The negative balance of minus 14% compares with minus eight in August and minus three per cent in May. However, both total and export order books remain much fuller than a year ago, when UK manufacturing was emerging from a long period of declining production.

The slowdown in orders has triggered a build up of stocks and forced firms to scale back output expectations for the next three months. But firms still anticipate steady output growth with 30 per cent of firms expecting an increase and 18% expecting a decrease – the balance of plus 12% compares with plus 19% in August.

Manufacturers still expect to raise prices over the next three months, but their expectations are less positive than they were in August, indicating the ongoing struggle to raise profitability.

Ian McCafferty, CBI Chief Economic Adviser, said: “The manufacturing recovery seems to be stuck in a low gear. It is continuing but the pace has been volatile in recent months, which suggests a degree of uncertainty among manufacturers.”

“Although order books weakened this month, the results compare favourably with the position over the past ten years. However, profit margins will remain under pressure. Cost pressures remain intense, with oil prices averaging more than $40 a barrel during this survey period, and metals prices edging back towards their early-2004 peak,” he concluded.

Editor’s note: The survey was carried out between 26 August and 15 September 2004 and 812 manufacturers responded. During the survey period sterling averaged 1.47 Euros (DM 2.88) and $1.79 compared with 1.50 Euros (DM 2.93) and $1,83 in the August 2004 survey.

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