Survey indicates end to manufacturing downturn

Results from the CBI’s latest industrial trends survey indicate an upturn in the manufacturing sector, with the strongest growth in total orders and output for over eight years.

The CBI has declared the manufacturing downturn over as it published figures showing the clearest evidence yet of recovery in the sector.

Its quarterly industrial trends survey shows the strongest growth in total orders for over seven years and the strongest growth in output for over eight years. In line with this more buoyant trading, confidence has increased for the first time in 18 months and firms predict strong growth over the coming quarter.

But the employers’ organisation cautioned that the improvement is from an extremely low base following years of contraction in the sector. Two thirds of firms continue to work below capacity, jobs are still being lost and competition continues to put pressure on prices.

The survey shows 30 per cent of respondents saw orders rise over the past three months, and 17 per cent saw them fall. The balance of plus 13 per cent is the largest increase in orders since October 1996 and marks the first increase in orders for three years. Firms now expect the increase in total orders to be repeated over the coming quarter.

The improvement in orders is said to come from both domestic and foreign sources, boosted by the global recovery. For export orders a balance of plus four per cent compares favourably with minus 22 per cent last quarter and marks the first increase in export orders for over seven years. Exporters are also more confident about the next three months, with a balance of plus 17 per cent predicting increased demand from overseas.

Output has increased for the first time in three years and companies are now more positive about production for the next three months than they have been for over six years. But 66 per cent of firms continue to work below capacity, only a slight reduction from the 68 per cent recorded in the previous two surveys.

‘The manufacturing sector is at last on a path to recovery and firms clearly believe the worst is behind them. Trading conditions have improved across the board, with orders and output accelerating sharply and uncertainty diminishing,’ said Ian McCafferty, CBI Chief Economic Adviser.

He added: ‘The recovery now depends on the positive expectations for the coming quarter being realised, so manufacturers will be hoping that the Bank of England continues its gradualist approach to raising interest rates.’

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