Manufacturing activity drops; demand remains steady

Posted on 22 Mar 2016 by Victoria Fitzgerald

Activity in the manufacturing sector fell in March, but production is expected to rebound over the next three months, according to the CBI Industrial Trends Survey.

The survey of 471 manufacturers found that output volumes over the three months to March fell at the fastest pace since September 2009.

In total, eight of the 18 manufacturing sub-sectors posted a decline in output. Two-thirds of this decline (relative to February) reflected weakness in the food and drink sector, with localised flooding and mild weather potentially having hit production.

Manufacturers anticipate a particularly strong rise in output over the next quarter, placing expectations at the highest level for thirteen months, with a rebound in food and drink.

Meanwhile, total order books rose slightly from the level seen since the start of the year, and export orders also remained unchanged from February. Both measures sit just above average levels.

Companies still anticipate that prices will fall in the near-term, albeit to a lesser extent than they did in the previous month.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI.

CBI director of Economics, Rain Newton-Smith commented: “March has been a mixed month for the UK’s manufacturers. While total order and export books remained steady, a drop in output reflected some volatility in the food and drink sector. Reassuringly, manufacturers expect a swift turnaround in activity.

“While the Budget included several policies that should drive growth, the absence of further measures to support innovation, and research and development, was a missed opportunity to boost investment. The Government’s upcoming National Innovation Plan needs to address this vital issue.”

Key findings:

  • 20% of firms reported total order books to be above normal, and 34% said they were below normal, giving a balance of -14%. This was just above average (-15%), and similar to January (-15%) and February (-17%)
  • 11% of businesses said their export order books were above normal, and 30% said they were below normal, giving a balance of -19%. This was unchanged on the previous month, and around average (-20%)
  • 18% of firms said the volume of output over the past three months was up and 33% said it was down, giving a balance of -15%. This was the lowest level since September 2009 (-19%)
  • Businesses expect output to grow significantly in the coming quarter, with 39% predicting growth, and 16% a decline, giving a balance of +23%.  This was the highest level in thirteen months (+25%)
  • Average selling prices are expected to fall marginally over the next three months (-1%)
  • 16% of firms said their present stocks of finished goods are more than adequate, while 3% said they were less adequate, giving a rounded balance of +13%, near the long-run average (+14%).