UK manufacturing output growth wanes but stays above long-term average

By Terry Irwin |
Categories: Economy, Manufacturing
Tagged With: , ,

Manufacturers’ output volumes growth slowed following a robust showing in the previous month, according to the latest Industrial Trends Survey by the Confederation of British Industry (CBI).

The survey of 409 firms revealed that output growth slowed in the three months to September 2018, but remained above the long-term average.

Output expanded in 10 out of 17 subsectors, with growth driven predominantly by the mechanical engineering, food, drink and tobacco, plastic products and metal products sectors. Manufacturers expect output growth to pick up over the next three months.

Meanwhile, total order books weakened slightly again, but remained well above the long-run average. Export order books also faded a little to their weakest in almost a year, but likewise remained well above the long-run average.

Expectations for output price inflation remained firmly above the long-run average, while stocks of finished goods remained adequate but below the long-run average.

The CBI expects UK manufacturers to continue benefiting from healthy external demand and a lower sterling exchange rate. However, overall economic growth is expected to remain subdued, reflecting weak household income growth and the drag on investment from Brexit uncertainty.

“Brexit uncertainty continues to cloud the outlook”

According to Anna Leach, Head of Economic Intelligence at the CBI: “While manufacturing order books remain strong and output is still growing, Brexit uncertainty continues to cloud the outlook. Heightened fears of a ‘no deal’ Brexit scenario have prompted some firms to move publicly from contingency planning to action.

“Efforts on all sides must be geared towards securing the Withdrawal Agreement and – crucially – the transition period. This will provide temporary but essential relief for businesses of all sizes and sectors.

“Looking ahead to the Autumn Budget, business rate reform, coupled with movement on capital allowances, could help encourage productive investment against this uncertain backdrop.”

Government must protect frictionless trade with the EU

Tom Crotty, Group Director, INEOS, and Chair of the CBI Manufacturing Council, said: “Robust output volumes and order books are good news for British manufacturers, who have benefited from a healthy global economy and lower sterling exchange rate. However, the continued uncertainty surrounding the final six months of Brexit negotiations presents a real risk to the continuation of this strong momentum.

“In the coming months, manufacturers will be looking to the Government to protect the frictionless trade with the EU that they need to thrive. And it is important that measures to bolster competitiveness domestically – such as getting the Apprenticeship Levy fit for purpose – aren’t overlooked.”

Key findings from the survey

  • 20% of manufacturers reported total order books to be above normal and 20% said they were below normal, giving a rounded balance of -1%.
  • 17% of firms said their export order books were above normal and 13% said they were below normal, giving a rounded balance of +5%.
  • 33% of businesses said the volume of output over the past three months was up and 22% said it was down, giving a balance of +11%.
  • Manufacturers expect output to grow at a faster pace in the coming quarter, with 31% predicting volumes to increase and 12% expecting a decline, giving a balance of +19%.
  • 20% of companies expect average selling prices to increase in the coming three months and 6% predict a decrease, giving a rounded balance of +13% (compared with +15% in August).
  • 16% of firms said their present stocks of finished goods were more than adequate, while 13% said they were less than adequate, giving a balance of +3%, which was below the long-run average (+13%).

Is Brexit uncertainty curbing the growth of your business? For advice on meeting the challenges ahead, email me or call me on 020 7099 2621.

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