Manufacturing holds up against odds

Posted on 22 Jan 2008 by The Manufacturer

The latest CBI Industrial Trends survey has showed the manufacturing sector to be strong despite economic instability and the resounding pessimism of three months ago.

The quarterly survey showed that growth in orders has remained steady, with especially satisfactory export figures. A balance of +11 per cent of firms experienced a growth in orders (28 per cent reporting an increase against 17 per cent reporting a decrease). These results exceeded previous expectations and followed the pattern of previous surveys, although a balance of +4 per cent of firms continue to expect a future slowdown.

Demand for the quarter was mainly down to healthy export orders, likely to have been encouraged by the weaker pound, with a balance of +10 per cent of companies experiencing an increase in overseas orders. Export orders accelerated at their fastest rate since October 1995 (+11 per cent), whereas the balance for domestic orders remained almost flat (-1 per cent). Political and economic factors, however, are seen to be of increasing concern, with orders expected to experience flat growth over the next three months.

Growth in output remained stable (+8 per cent), with expectations similar for the ensuing quarter. Average unit prices increased once again, as reported by a balance of 25 per cent of firms, mostly due to an increase in input costs for oil and metal, as well as raw materials such as cereals and dairy products. This had a knock-on effect on domestic prices, which rose for a balance of 13 per cent, and export prices for 5 per cent. A balance of +5 per cent reported the fastest rate of increase since July 2005.

Manufacturing employment fell during the quarter (-14 per cent), while a balance of -19 per cent expect to reduce their workforce during the next three months. The CBI has estimated that, in view of the survey results, 13,000 jobs were lost during the last quarter, with further 24,000 expected for the next quarter, resulting in a total employment figure of 2,873,000.

Despite the positive performance, confidence fell once again, with a balance of 18 per cent of companies less positive about their current situation than they had been at the end of the previous quarter. However, investment plans hold strong in the face of doubt, with intentions for the next 12 months as strong as ever.

“Manufacturers share similar concerns to other sectors about the economy – a fear that rising costs might become combined with slowing demand,” said CBI chief economic adviser Ian McCafferty. “Thankfully, the expected wobble in demand didn’t materialise in the last three months and orders for British-made goods have held up, particularly from abroad. What we are seeing is part of a necessary rebalancing of the economy, in the face of slowing consumer spending.”

“The dilemma the Bank now faces over interest rates is to weigh risks of a slowdown with the real and present pressure on prices in both factories and other areas of the economy. Price pressures from oil and food costs will bring higher inflation in the short-term and may push the inflation rate further above target during 2008, making the Bank’s decision even more difficult,” he added.