CBI reports weakening demand for manufacturers

Posted on 24 Nov 2011
Ian McCafferty, CBI chief economic advisor

Manufacturers are reporting weakening demand and expect output to fall, the CBI said today (Tuesday Nov 21).

UK manufacturers have reported weakening order books in November, with export orders deteriorating significantly, according to the business group’s November Industrial Trends Survey.

Firms expect a fall in production over the coming quarter.

Of 446 manufacturers who responded, 11% reported export order books to be above average, while 42% said that they were below. The resulting survey balance of -31% is the lowest since January 2010 (-33%), marking the first time that it has fallen below its long-run average (-21%) since February 2010 (-23%).

Total order books also failed to see any improvement, 34% describing total orders as above normal with only 15% reporting that above normal figures. The resulting balance of -19% represents a worsening in total order positions in comparison with earlier this year.

Expectations for output remained negative for the second month running. While 20% of manufacturers believe output will rise in the next three months, 29% expect to cut back on production. The resulting rounded balance of -8% is a slight improvement on October’s result of -11%, but is the monthly survey’s lowest balance since July 2009 (-14%).

Ian McCafferty, CBI chief economic adviser, said: “Developments in the eurozone, and their impact on prospects for our major trading partners, are clearly hitting the UK manufacturing sector, and we’ve seen a sharp decline in export order books this month.”

“In response to weaker demand, firms still expect to cut back on production. With heightened uncertainty over global prospects and business confidence falling sharply, it is very possible that factories will see production slowing further in the near term.”

Not all companies are reporting a negative forecast. Toyota and Nestle both reported massive investments of +£100m in their UK manufacturing plants today, and pockets of good news arose from Arrowsmith Engineering, Semta and the winners of the IMechE’s 2011 MX awards.

Andrew Churchill, managing director at precision engineering firm JJ Churchill, commented: “We’re not seeing a weakening in demand, we are seeing very strong and full order books. The advanced manufacturing sectors remain very busy with lots of opportunity,” he added.

“At JJ Churchill the broad market for exports, both indirect and direct, remains very strong.” Mr Churchill said that it was impossible for him to answer the CBI’s question ‘are total orders above normal?’ as there has been no norm since the recession.

However, he expects £5m turnover growth at the end of the company’s financial year, around £23m, up from 2010’s turnover of £18m.

Responding to Ian McCafferty’s comments on the eurozone crisis as a source of weakening exports, Churchill said that his company is not yet feeling the effects but is expecting the macroeconomics to filter through the whole economic system soon, having a profound effect on manufacturers.

He added: “The outlook would be a lot brighter if the government got to grips with encouraging manufacturer’s to invest in the next generation of technology. I would like to see 100% deductibility on corporation tax against capital expenditure.”

Tom Moore