Business confidence takes hard knock

Posted on 23 Jul 2008 by The Manufacturer

Business confidence has fallen for the fourth quarter in a row to its lowest level since October 2001, according to the latest CBI Industrial Trends survey published today.

Soaring oil prices mean businesses face the fiercest cost increases since 1980 – in the past three months, unit costs rose for 65 per cent of UK manufacturers. As a result, firms are increasing prices to offset damage done to their profit margins faster than at any point since 1995. Firms expect domestic prices to rise over the next three months faster than at any time since 1990.

Manufacturing output remained stable despite the fact that domestic orders fell considerably. Export orders held up well. However, overall expectations of output and orders for the coming quarter are at their lowest level for five years.

The drop in confidence has not yet been reflected in job losses, which were at their lowest level since October 2004 over the last quarter. However, expectations for the coming quarter are considerably worse, with 27 per cent of respondents expecting to cut jobs. Based on the survey results, the CBI estimates that 10,000 jobs were lost in the second quarter and forecasts that 26,000 will go in the next quarter.

New investment is also down to its lowest level since October 2002.

Ian McCafferty, chief economic adviser to the CBI, said: “ Cost pressures on manufacturers have been noticeable for over four years, but in the last three months they have been their most intense for nearly three decades. The record oil price peaks in the last three months have pushed down further on business confidence and lowered firm’s expectations for demand in the coming quarter. Even exports, which so far have helped bolster manufacturers’ order books, are expected to soften despite the boost to competitiveness from weaker sterling.”