Industry optimism grows at fastest rate for two years

Posted on 25 Jan 2017 by Fred Tongue

UK manufacturers have seen optimism grow at its fastest rate in two years thanks to positive exporting prospects, strong growth in domestic orders and confidence in their business situation, according to the latest quarterly CBI Industrial Trends Survey.

The latest quarterly CBI Industrial Trends Survey shows that optimism in the manufacturing sector has grown at its fastest rate for two years. Collating the views of more than 460 manufacturers, the report also shows that domestic orders have grown at the quickest pace since July 2014 in the three months to January.

Exports also grew over the period, however they were below expectations and headcount also edged higher after briefly dipping for the first time in six years last quarter. Moving forward demand is expected to grow strongly over the next three months as is output growth, which are at their highest since July 2014.

The survey highlights that there are still concerns over the labour market with almost a quarter of respondents, the highest since July 1989, noting that a lack of available skilled labour could limit output over the coming months.

The depreciation of the pound has seen unit costs rise at the fastest pace in over five years amid expectations that this will intensify over the next quarter, but manufacturers continue to see the positives of the ailing pound. The exchange rate means that British firms are reporting a strong rise in competitiveness in the EU and a survey high for non-EU markets.

Increased output means that it has eaten in to spare capacity and has caused firms to cite capacity expansion as an investment driver to a survey high. Firms are also planning to increase investment in product and process innovation at the fastest pace for two years, alongside training and retraining. Investment plans for building and plant and machinery have moved above their long-run averages.

CBI Chief Economist, Rain Newton-Smith explained: “UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years. The weaker Pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers.

“The new Industrial Strategy can support our manufacturing base by offering a shared long-term vision for the key sectors and regions of the economy and evidence-based plans for government and business collaboration. The CBI and its members across the country stand ready to support the government in achieving this.”