UK manufacturing activity slows its decline but remains weak

UK manufacturing output volumes in the three months to October 2020 fell at their slowest pace since March 2020, according to the latest quarterly Industrial Trends Survey by the Confederation of British Industry (CBI). Output dropped in 10 out of 17 subsectors, with the headline decline driven by the aerospace sector.

The survey of 310 manufacturing firms found that total new orders were broadly flat in the three months to October, following their sharp drop in July and a total of five successive quarters of decline. Domestic orders picked up slightly, while export orders fell at a much slower pace than in the previous quarter.

Headcount in the quarter to October fell at a slower pace than in July (when it declined at the fastest rate since April 2009).

Business sentiment in the quarter to October was stable for a second quarter, while export sentiment fell at a slightly quicker pace than in July.

Concerns over access to materials and components

Looking ahead to the coming quarter, manufacturers expect output to grow at a moderate pace. However, total new orders are expected to remain unchanged, reflecting steady growth in domestic orders and a slower fall in export orders.

Meanwhile, almost a third of manufacturers are concerned that access to materials or components may limit their output over the quarter ahead. Headcount is expected to be broadly unchanged in the next quarter, following six quarters of decline. And manufacturers are less concerned that access to finance could constrain near-term output or investment plans.

“Government must stay on the front foot”

CBI Chief Economist Rain Newton-Smith commented: “Conditions remain tough in the manufacturing sector, with output and orders still down on the quarter, albeit to a lesser degree. The government must stay on the front foot when it comes to providing support for the sector and wider economy.

“It is more crucial than ever for the government to listen to the experiences and concerns of businesses and ensure support matches the tightness of local lockdowns. Additionally, signing a trade deal with the EU would help create some clarity that firms so badly need during this fraught period.”

“Sector is not out of the woods yet”

Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, said: “While it is welcome to see a slightly rosier picture for manufacturing, there’s no escaping the fact that firms have endured another incredibly difficult quarter. The sector is not out of the woods yet and it will be important for the government to continue to support businesses as we approach the winter.

“Manufacturers will also be closely observing progress with Brexit negotiations as the deadline for a deal approaches. Manufacturing jobs, businesses and livelihoods are very much at stake and it is essential that leaders find a way through the current impasse and secure a deal.”

A detailed breakdown of the CBI survey results in available here.

For information on what you can do to steer your business through the current difficult conditions, email me or call me on 020 7099 2621.