Manufacturing growth remains steady

21 August, 2015

The survey of 445 firms reported slower growth in total new orders in the quarter to July, though it remained above average. Growth in total new orders, output and numbers employed are projected to remain firm over the next quarter.

The volume of new export orders rose slightly, but the outlook for the next quarter is gloomier. Survey respondents continue to report sharp falls in competitiveness in the EU, likely linked to Sterling rises earlier in the year. Political and economic conditions abroad were also seen as a constraint on orders by a significant number of firms.

Investment intentions remain broadly similar to the last quarter, staying above their long term averages, with plans for spending on building and plant and machinery improving slightly.

Pressure

Katja Hall, CBI deputy director-general, said: “Manufacturers are continuing to feel the pressure from the stronger pound. Greater buoyancy in exports remains a missing element from the UK’s recovery. Nevertheless we’re encouraged by the Government’s commitment to take steps to address this as part of its recently announced productivity plan.

“The EU remains our largest trading partner, so while the UK economy’s direct exposure to Greece is minimal, we must encourage all leaders to act decisively to preserve growth and stability throughout the Eurozone. Despite Sterling pressures and the challenging global backdrop, investment intentions remain above average, particularly in innovation and training.”

Key findings

• 33 per cent of businesses reported an increase in total new order books, and 24 per cent a decrease, giving a balance of +9 per cent. This remains above the long-run average (-1 per cent).

• The balance for domestic orders (+12 per cent) was also well above the long-run average (-5 per cent) and the same as the previous quarter.

• The balance for export orders (+6 per cent) was broadly unchanged from that in the previous two quarterly surveys (both +4 per cent), but is above the historical average (-7 per cent).

• 25 per cent of manufacturers said employment numbers were up, and 15 per cent said they were down, giving a balance of +10 per cent, up from +5 per cent in April.

• 28 per cent of firms reported a rise in output volumes, and 16 per cent a decrease, giving a rounded balance of +12 per cent, well above the average of +1 per cent.

• Manufacturers’ investment intentions compared to the previous twelve months rose slightly for buildings (to -14 per cent, from -19 per cent) and plant and machinery (to -3 per cent, from -6 per cent), but dipped slightly for product and process innovation (to +17 per cent, from +18 per cent) and training and retraining (to +22 per cent, from +25 per cent).

• Manufacturers believe their competitiveness in the EU continues to fall sharply (-21 per cent).

• Firms with present capacity at least adequate to meet expected demand fell (+85 per cent) below the long-run average (+89 per cent).

• Optimism about the business situation increased a little (+8 per cent), while sentiment about export prospects for the year ahead fell slightly (-5 per cent).

• The number of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months grew (to 34 per cent, from 28 per cent).

• 60 per cent of manufacturers said orders or sales was a factor likely to constrain activity over the next quarter, the lowest since October 1988 (56 per cent).