Falling demand and stagnant output concerns UK manufacturers

Posted on 25 Jan 2012
John Cridland, director-general at the CBI
John Cridland, director-general at the CBI

Positive sentiment among UK manufacturers has fallen, according to the CBI. Concerns over exports have arisen alongside falling global demand and British manufacturer’s output is stagnating as a result.

The latest CBI quarterly Industrial Trends Survey asked 387 manufacturers about their views and experiences of business in the manufacturing sector over the past three months. 27% of respondents said output rose, while 26% said it fell at their companies.

The resulting rounded balance of +2% showed that production weakened sharply in the three months to January. The result was influenced by the poorer than usual performance of the chemicals sector. The report found that if the chemicals sector was excluded from the results, the extent of both the downturn and the rebound would be less pronounced.

For the first time in two years, domestic and export orders both fell by balances of -17% and -19% respectively. The decline in export orders was the first since October 2009.

Confidence among respondents was hit by growing concern over international political and economic conditions. Regarding export orders, this concern became even more prevalent.

In contrast to the negativity surrounding international affairs and the knock-on effect it will have on UK manufacturing, respondents to the CBI survey were broadly positive about the next three months, with a balance of +15% expecting manufacturing output to rise modestly.

Sentiment was also affected by the continuing concern over export credit. Even though credit or finance fell back slightly on October’s survey as a factor likely to limit export orders – 13% compared with 18% – it remains above the historical average.

Stocks of finished goods were unchanged in the past three months, and this expects to be the case three months from now. Employment rose in manufacturing for the sixth time in a row. Respondents to the survey remained overwhelmingly positive about continued investment in equipment and facilities.

Director-general of the CBI John Cridland commented on the international conditions affecting the sentiment of UK manufacturers: “The crisis in the Eurozone is still hanging over the UK, threatening future growth. With large amounts of peripheral countries’ debt maturing in the coming months, Eurozone stability is far from assured.”

He retained a sense of optimism, however: “Within this survey there are some tentative signs that things could improve somewhat in the coming quarter. Key factors behind this include the fact that the US recovery has been better than expected, and the impact of the credit rating downgrades in the Euro area has been muted.”