UK manufacturing output stabilises

UK manufacturing output stabilised in the three months to August 2019, following a drop in July. That’s according to the latest monthly Industrial Trends Survey by the Confederation of British Industry (CBI).

The survey of 286 manufacturing firms revealed that both total order books and export order books were reported as below normal, but to a lesser extent than in July.

Output volumes expanded in 7 of 17 subsectors in the quarter to August, with the chemicals, mechanical engineering and plastic products subsectors driving the positive contributions to growth. Meanwhile, the paper, printing and media subsector acted as the primary drag on growth. Respondents expect output volumes to remain unchanged over the next three months.

Manufacturers expect to keep output prices in the next three months broadly unchanged – the lowest balance since February 2016. Present stocks of finished goods were reported as above adequate, but were roughly in line with the long-run average.

“Double whammy”

CBI Deputy Chief Economist Anna Leach commented: “Despite signs of stabilisation in the data this month, UK manufacturers remain on the receiving end of a double whammy: the slowdown in the global economy and Brexit uncertainty. Trade tensions between nations such as China and the US only exacerbate the demand uncertainty facing UK manufacturers.

“As we get closer to October, it’s crucial that the new Prime Minister secures a Brexit deal ahead of that deadline and gets on with pressing domestic priorities, from improving our infrastructure to fixing the apprenticeship levy.”

“Millstone around the neck of manufacturing firms”

Tom Crotty, Group Director of INEOS and Chair of CBI Manufacturing Council, said: “Relentless Brexit uncertainty has continued to be a millstone around the neck of manufacturing firms as we approach the end of the summer.

“It’s vital that the Government lifts this burden by ending the Brexit deadlock. Only then can our manufacturers turn their full attention to long-standing issues affecting the sector, such as solving the skills challenge and improving productivity.”

Meanwhile, official data showed that the economy contracted slightly in the second quarter of the year, as the drive to build stocks ahead of the spring Brexit deadline unwound and car companies adjusted their annual factory shutdowns. Early indications of growth for the third quarter are subdued, with underlying momentum weak. At the same time, global growth is expected to slow as trade tensions continue to erode world trade flows. For more information, see the CBI’s July Economic Forecast.

Key findings from the survey

  • 15% of manufacturers reported total order books to be above normal and 28% said they were below normal, giving a balance of -13% (from -34% in July). This month’s figure is line with the long-run average (-13%).
  • 11% of firms said their export order books were above normal and 26% said they were below normal, giving a balance of -15% (from -32% in July) – broadly in line with the long-run average of -17%.
  • 24% of businesses said the volume of output over the past three months was up and 27% said it was down, giving a balance of -3% (from -11% in July, long-run average of +4%).
  • Manufacturers expect output to remain broadly unchanged in the coming quarter, with 24% predicting growth and 25% a decline, giving a balance of -1%.
  • Expectations for growth in average selling prices for the coming three months (-2%) were at their lowest balance since February 2016.
  • 18% of firms said their present stocks of finished goods were more than adequate, while 4% said they were less than adequate, giving a balance of +14% – roughly in line with the long-run average (+13%).

Is your business suffering due to the global slowdown combined with Brexit uncertainty? For advice on the best ways to meet your current challenges, email me or call me on 020 7099 2621.