Survey shows slowdown to be worsening

Posted on 21 Oct 2008 by The Manufacturer

The latest quarterly CBI Industrial Trends survey has shown that falling demand for manufactured goods, coupled with a sharp fall in output, has resulted in the sharpest single quarter fall in manufacturing confidence for 28 years.

During the last three months, 16 per cent of manufacturers reported a rise in new orders while 46 per cent said they had fallen. The resulting balance of -30 per cent signalled the fastest quarterly fall in total new orders since January 1999. Meanwhile, a balance of -38 per cent of firms reported falling domestic orders – the sharpest fall since January 1992.

Export orders, which had recently been seen to have been supported by the depreciation of sterling, also fell (a balance of -19 per cent) as the global economic slowdown choked demand.

Manufacturing output dropped at its fastest rate in 10 years, with a balance of -29 per cent of firms experiencing a fall in the last three months. And this situation does not look likely to change in the near future, with output (-31 per cent), domestic orders (-42 per cent) and export orders (-21 per cent) all expected to fall further in the next quarter.

The gloom appears now to be seriously affecting manufacturers’ confidence, with four per cent more optimistic about the general business situation than three months earlier against 64 per cent who were less so. The resulting balance of -60 per cent represents the fastest fall in confidence since July 1980. Meanwhile, the balances of respondents planning to reduce capital spending on buildings and machinery over the next 12 months are the highest since the early 1980s.

On the positive side, the number of job losses during the quarter was not as steep as firms had predicted in the previous quarterly survey, with a balance of -15 per cent reducing their workforces. However, a balance of -33 per cent predicted they will make cuts in the next three months. The CBI has forecast 23,000 manufacturing jobs will be lost in the third quarter, rising to 42,000 in the fourth quarter.

Domestic price inflation is seen to have eased (a balance of +21 per cent down from +27 per cent in July) and is expected to fall back even more sharply over the next quarter (a balance of +10 per cent). Meanwhile export price inflation in the three months to October was, with a balance of +19 per cent, similar to that of earlier in the year, but is expected to slow slightly in the next three months (balance of +14 per cent).

“This survey was conducted during a period of exceptional economic turbulence, so it is unsurprising that confidence has taken such a hit,” said Ian McCafferty, CBI chief economic adviser. “However, the sharp falls in orders and output show that the slowdown in the UK economy is now spreading to sectors previously resilient to the weakness in the banking and housing markets.

“We can but hope that the recapitalisation of banks and the cut in interest rates, which took place just as the survey closed, will prevent a further credit squeeze over the winter.”