Manufacturing strengthened by exports

22 September, 2016

The survey of 505 firms found that export order books reached a two-year high, suggesting that the depreciation of sterling since the end of last year may be feeding through to stronger overseas demand. Chemical manufacturers accounted for just over half the improvement in export orders, with less than one-third of the 17 manufacturing sub-sectors reporting export orders at below normal levels.

Despite the improvement in exports, total order books were largely unchanged but remained comfortably above the long–run average. Output growth remained at a healthy pace, although a little weaker than in the three months to July.

Price expectations for the three months to November rose to their highest since February 2015, perhaps in response to the rise in the cost of imported raw materials following sterling’s depreciation.

Anna Leach, CBI head of economic analysis and surveys, said: “It’s good to see manufacturing output growth coming in stronger than expected, and some signs that the fall in sterling is helping to bolster export orders. But the pound’s weakness is a double-edged sword, as it benefits exporters but also pushes up costs and prices.

“Manufacturers will welcome the new government’s focus on industrial strategy as well as the Chancellor’s recent guarantee over EU funding, which will help to provide certainty for universities and businesses investing in innovation and research and development.

“The most significant effects of the vote to leave the EU will flow over the medium- to long-term. Therefore, firms need to see ambitious decisions in the Autumn Statement that will secure the UK’s economic future as changes to trade, regulation and access to skills loom on the horizon.”

Key findings

• 19 per cent of businesses reported total orders to be above normal (compared with 18 per cent in July), and 24 per cent said orders were below normal, giving a balance of -5 per cent.

• 21 per cent of businesses reported export orders to be above normal and 27 per cent below, resulting in a balance of -6 per cent, the highest since August 2014 (-3 per cent).

• 34 per cent of businesses reported a rise in output volumes, and 23 per cent a fall, giving a rounded balance of +11 per cent, down from +16 per cent last month, but better than expected (+6 per cent).

• Output growth is expected to remain steady over the next three months, with 30 per cent companies expected a rise and 19 per cent expecting a fall, leaving a balance of +11 per cent.

• Average prices are expected to increase over the next quarter, with 17 per cent companies expecting to raise prices and 8 per cent expecting to cut prices, giving a balance of +8 per cent - the highest since February 2015.

• 14 per cent of businesses reported stocks as more than adequate to meet expected demand, and 10 per cent less than adequate, leaving a rounded balance of +4 per cent.