The latest figures from the Confederation of British Industry (CBI) show employment in the manufacturing sector recorded the strongest growth figures for a year in the quarter leading up to July.
New orders increased in the manufacturing sector for the first time in a year, while production continued to rise modestly, according to the latest CBI quarterly Industrial Trends Survey.
Optimism among manufacturers about both the general business situation compared with the previous three months, and export prospects for the year ahead, grew for the second quarter in a row.
Meanwhile, employment in the sector also continued to rise, recording the strongest growth in a year – this marks the 12th consecutive quarter of hiring, a survey record.
The survey of 390 firms found that both domestic and export orders rose – though still disappointing manufacturers’ expectations of stronger growth – domestic orders recorded the strongest growth in a year, and export orders the fastest in more than two years.
Firms anticipate a further modest rise in orders and output in the coming three months, and expectations for growth in new domestic orders are at their highest since April 2012.
Elsewhere, there were signs of the squeeze in manufacturers’ margins easing. Domestic price inflation picked up a little in the three months to July, in line with expectations. But, growth in manufacturers’ unit costs fell to a year-low and is expected to fall further in the coming quarter.
Despite a further rise in optimism, investment intentions remained muted. Planned spending over the next twelve months (compared with the previous twelve months) on buildings is expected to be unchanged, while planned capital expenditure on plant and machinery deteriorated slightly, though remained above average.
When asked about factors likely to limit investment, manufacturers most often cited uncertainty about demand, which was of slightly greater concern than usual.
Stephen Gifford, CBI director of economics, said:
“Manufacturers have seen a pick-up in activity across the board this quarter, with new orders and production continuing to rise.
“Optimism in the sector has risen again, and demand conditions are expected to improve further in the coming three months.
“The gentle rise in confidence is being reflected in firms’ headcount, which is rising at the fastest rate in a year.
“But manufacturers remain concerned about political and economic conditions abroad limiting export orders, which is likely to reflect heightened uncertainty over the global economic outlook.”
Key findings – three months to July:
- 32% of firms reported an increase in total new orders and 27% said they decreased, giving a balance of +5%, the highest since April 2012 (+8%)
- The balance for domestic new orders (+6%) was the highest since July 2012 (+6%) and the balance for export new orders (+7%) was the highest since April 2011 (+24%)
- Output increased modestly for the second consecutive quarter (+7%), with 28% of firms saying output volumes were up, and 21% saying they were down
- Manufacturers said they were slightly more optimistic about their business situation than in the previous quarter, with 20% of firms saying they were more optimistic compared with three months ago and 13% of firms saying they were less optimistic, giving a balance of +7%
- Optimism about export prospects for the year ahead also grew, with 20% of firms saying they were more optimistic compared with three months ago and 14% of firms saying they were less optimistic, giving a balance of +6%
- Manufacturers’ stocks of raw materials were flat (+1%), while stocks of work in progress and finished goods were slightly up on the previous quarter (+3% and +5% respectively)
- Average domestic prices rose slightly (+7%), but export prices were flat (0%), while unit cost growth was at its lowest in a year (+13%)
- Numbers employed in the manufacturing sector increased (+13%)
Next quarter:
- A balance of +16% of manufacturers expect total orders to increase, while balances of +13% expect domestic orders to rise and +9% predict growth in export orders
- A rounded balance of +15% of firms expect output to increase, with 29% predicting an increase and 15% a decrease in output volumes
- Average prices over the next three months are expected to be flat (+2%), the lowest expectation since July 2012 (-3%)
Investment plans and constraints:
- Concern about prices acting as a constraint to export orders in the next three months was cited by 39% of firms, the lowest since April 2012 (39%)
- Concern about political and economic conditions abroad as a likely limit on exports was cited by 32% of firms, well above average (22%) but a little lower than in the previous survey (39%)
- Manufacturers’ investment intentions compared to the previous twelve months remain above average for product and process innovation (+24% compared with +10%), training (+20% compared to +11%), and plant and machinery (-1% compared to -9%) but slightly less than average on buildings (-23% compared to -20%)
- Uncertainty about demand remains the number-one constraint on investment, but is only slightly above its long-run average (55% of firms cited this, against a long-run average of 52%)
