Early signs of a turnaround in UK manufacturing activity

UK manufacturing activity remained weak in the three months to February 2020, with output volumes falling for a fifth rolling quarter in a row, albeit at a slower pace than in January. That’s according to the latest monthly Industrial Trends Survey by the Confederation of British Industry (CBI), released today.

The survey of 318 manufacturing firms reported that both total and export order books improved slightly, to their strongest positions in six months. In particular, export order books are now in line with their long-run average.

However, output volumes fell in the three months to February, at only a slightly slower pace than in January. Output rose in only five out of 17 subsectors, with the headline drop in output primarily driven by two subsectors: food, drink and tobacco, and mechanical engineering. But manufacturers expect output to recover somewhat in the three months ahead, with predictions for growth improving for the second successive survey.

Businesses surveyed also stated that stock adequacy was roughly in line with its long-run average, having fallen back from the highs seen over the course of the last year. Output prices are expected to remain broadly unchanged in the next three months.

“Sector is still grappling with longer-term uncertainty”

CBI Lead Economist Alpesh Paleja commented: “It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it’s probably still too early to say whether we’ve seen the end of the slowdown in the sector. Notwithstanding improving optimism, the sector is still grappling with longer-term uncertainty over the UK’s future relationship with the EU.

“While the government makes progress on new trading arrangements, the upcoming Budget offers a real opportunity to support manufacturers. Measures such as reforming business rates, increasing the R&D tax credit, and creating catapult quarters for high-tech research hubs, present a real opportunity to shore up competitiveness, both in manufacturing and in the wider economy.”

“Progress is fragile”

Tom Crotty, Group Director of INEOS and Chair of the CBI Manufacturing Council, said: “The beginning of 2020 seems to have seen an improvement in UK manufacturing activity following a difficult 2019. Nevertheless, there can be no doubt that this progress is fragile and the new-look Cabinet must therefore waste no time in working with manufacturers to tackle long-standing challenges and seize opportunities for growth.”

Click here for more details about the survey findings.

Is uncertainty about the long-term outlook for your business causing you concern? For advice on dealing with the potential fallout from Brexit, email me or call me on 020 7099 2621.