UK manufacturers ‘firing on all cylinders’ says CBI report

Britain’s manufacturers are more optimistic about their business situation and exporting prospects, while reporting strong growth in domestic orders over the previous quarter, according to the latest quarterly CBI Industrial Trends Survey.

The survey of 461 manufacturers found that the volume of domestic orders rose at the fastest pace since July 2014 in the three months to January, while export orders continued to grow, but below expectations. Headcount edged higher having dipped for the first time in over six years in the last quarter.

According to the survey, robust growth is anticipated over the next three months, a situation reportedly driven by domestic and export orders, while production is expected to advance at an encouraging pace. Expectations for output growth are also the highest since July 2014.

Manufacturers report also that access to skilled labour is an ongoing concern, with almost a quarter of respondents – the highest since July 1989 – observing that skilled labour availability could limit output over the next few months.

Key findings – past quarter:

Domestic orders rose at their fastest pace (+16 per cent) since July 2014 (+23 per cent). Export orders rose more moderately (+5 per cent), and below expectations (+17 per cent)

37 per cent of businesses reported an increase in total orders, and 21 per cent a decrease, giving a balance of +16 per cent

32 per cent of firms said the volume of output over the past three months was up and 18 per cent said it was down, giving a balance of +15 per cent

22 per cent of manufacturers said employment numbers were up, and 18 per cent said they were down, giving a balance of +4 per cent

27 per cent of firms said they were more optimistic about the general business situation than three months ago and 12 per cent were less optimistic, giving a rounded balance of +15 per cent  – the highest since January 2015 (+15 per cent). Optimism about export prospects for the year ahead rose strongly (+19 per cent)

Firms competitiveness in the EU rose strongly again (+28 per cent) while their competitiveness in non-EU markets rose at the fastest pace in the survey’s history (+26 per cent)

Average domestic prices continued to grow at an above average pace (+9 per cent vs -3 per cent) for the third quarter in a row, while average export prices rose strongly (+16 per cent vs LR average of -9 per cent).

The proportion of firms working below capacity (46 per cent) was at its lowest since April 2015 (44 per cent)

Manufacturers intend to increase spending on product and process innovation strongly over the year (+27 per cent) and a higher rate level than in the previous quarter, while spending on training and retraining also continued to grow robustly (+27 per cent).

The number of firms citing access to skilled labour as a factor likely to limit output (24 per cent) was at its highest since July 1989 (24 per cent).

Sterling’s depreciation continues to impact prices as unit costs rose at their highest pace in over five years, amid expectations that this will intensify over the next quarter. Despite this, manufacturers continue to see the competitive benefits arising from sterling’s weakness, reporting a further strong rise in competitiveness within the EU and putting the rise in competitiveness in non-EU markets at a survey high.

The pick-up in output has started to erode spare capacity, pushing the proportion of firms citing capacity expansion as an investment driver to a survey high. Firms are planning to increase investment in product & process innovation and training and retraining over the year ahead at the fastest pace in two years, while investment plans for building and plant and machinery have moved back above their long-run averages.

Rain Newton-Smith, CBI chief economist, said: “UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years.

“The weaker pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers.

“The new Industrial Strategy can support our manufacturing base by offering a shared long-term vision for the key sectors and regions of the economy and evidence-based plans for government and business collaboration. The CBI and its members across the country stand ready to support the Government in achieving this.”

Key findings – next quarter:

Total new orders are expected to grow strongly (+18 per cent), as are domestic orders, though at a slightly slower pace (+14 per cent).

A balance of +17 per cent expect export orders to rise

Expectations for output growth (+26 per cent) are the strongest since July 2014 (+26 per cent)

Average domestic prices (+28 per cent), export prices (+24 per cent) and unit costs (+38 per cent) are all expected to rise at their strongest rates since April 2011.