New orders continued to expand for British manufacturers in the three months to January, but firms expect their export orders to tail-off in the coming quarter, according to the latest CBI Quarterly Industrial Trends Survey. The survey of 467 firms saw a rise in the volume of total new orders, led by strong demand at home and very modest growth in export orders. Manufacturing output rose at a similar pace to the previous quarter and it was notable that costs and prices fell, with unit costs edging down for the first time in over twelve years. Average domestic price deflation is at its fastest rate since 2010. Meanwhile, numbers employed in the manufacturing sector continued to grow at a solid pace. Over the next three months, firms anticipate new export orders to be flat, acting as a drag on total orders growth, while domestic orders are set to continue rising, if at a somewhat slower pace compared to previous quarters. Output is expected to continue growing modestly. However, access to skilled labour and capacity constraints are key factors cited as likely to limit output in the next quarter, and significantly more respondents expect price competition to limit export orders. Firms do, however, remain more optimistic about the general business situation than three months ago. Positive plant investment plans Looking to the year ahead, manufacturers’ plans for investment in plant and machinery have strengthened, while plans for spending on product and process innovation and training/retraining remain robust. Rain Newton-Smith, CBI director of economics, said: “British manufacturers are still heading along the right path: new orders are up, bolstered by domestic demand and more people are getting work in factories across the UK. Exports have grown modestly, but there is a feeling that we will not see a repeat in the next quarter, especially with the Eurozone still treading water and battling deflation. “Falling oil prices should be positive for the UK economy overall, benefitting households and lowering costs for firms, although North Sea oil producers are being hit. With overall cost pressures contained as a result, it’s no surprise to see average domestic prices in the manufacturing sector falling at the fastest rate for five years.” Key findings Key findings for three months to January 2015 include: • 36 per cent of businesses reported an increase in total new orders, and 17 per cent a decrease, giving a balance of +20 per cent. • The rounded balance for new domestic orders (+15 per cent) was well above the long-run average (-5 per cent) with 30 per cent of respondents reporting orders up and 16 per cent down. • Export orders saw a return to growth (+4 per cent) following a fall in the previous quarter (-7 per cent). • 27 per cent of manufacturers said employment numbers were up, and 15 per cent said they were down, giving a balance of +12 per cent. • 25 per cent reported a rise in output volumes, and 15 per cent a decrease, giving a balance of +10 per cent. Key findings for the next quarter include: • 25 per cent of manufacturers expect total new orders to increase, and 14 per cent expect them to fall, giving a rounded balance of +11 per cent, the lowest since October 2012 (+8 per cent). • A rounded balance of +12 per cent expect new domestic orders to rise (23 per cent expect an increase, and 12 per cent a fall), but following the slight increase this quarter, export orders are predicted to be flat (+1 per cent; 17 per cent expect a rise, and 16 per cent a fall). • 25 per cent of firms anticipate a rise in output volumes, and 12 per cent a fall, giving a balance of +13 per cent. • 23 per cent expect employment to increase, and 11 per cent expect it to decrease, giving a balance of +13 per cent. • Expectations for growth in domestic and export prices remain negative (-6 per cent and -2 per cent respectively). Unit costs are expected to also fall slightly further (-5 per cent).