Manufacturing decline ‘may be coming to an end’

Manufacturing News, Source : TheManufacturer.com
Published : 24 Feb 2006 14:22

Manufacturers' total order books are at an 11-month high, provoking hopes of an increase in output over the coming months.

The CBI’s monthly industrial trends survey released this week said total order books had improved between January and February and, though still regarded as ‘below normal’ by firms, they were less so than at any time during the previous 10 months. Eighteen per cent of manufacturers reported their order books as above normal and 36 per cent below – a balance of minus 18 per cent, up from minus 28 per cent in January and following an average of minus 26 over the past six months.

With order books improving, manufacturers now expect modest growth in output over the next three months. Some 33 per cent expect to expand production while 23 per cent expect a contraction. This positive balance of 10 per cent is the best expectation for a year, and follows a run of four months in which predictions were for output to be broadly flat.

The positive outlook for production has also been helped by a run-down in stocks of finished goods, levels of which are now just below the survey’s historical average.

The prospect of better demand conditions than for much of last year is also reflected in price expectations. For the second month running, more firms expect to be able to raise prices than reduce them - albeit a modest balance of six per cent. This follows eight months when pricing expectations were at best flat, however substantially rising energy costs mean profit margins are likely to be further squeezed.

On a less positive note, the survey shows export order books slipping back a little in February. Here, the balance of minus 17 per cent compares with minus 10 per cent in January and is broadly in the middle of the range seen throughout 2005.

CBI chief economic adviser Ian McCafferty said: “With energy costs up sharply in recent months, and some disappointing developments in the global economy, there is no doubt that UK manufacturers still face a challenging business environment. Nevertheless, this survey provides some encouraging news. Demand conditions facing the sector are the best for nearly a year. And if respondents’ expectations are realised, the decline in output through 2005 may finally be coming to an end.”

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