UK manufacturing growth slowed over the three months to April, but export orders remained well above average, according to a new survey.
The survey of more than 350 manufacturers has shown that optimism about general business conditions deteriorated marginally, while domestic orders were largely unchanged on the quarter.
Output growth slowed somewhat but remained well above the long-run average, the CBI Industrial Trends survey has unveiled.
In contrast, optimism regarding export prospects for the year ahead continued to improve at an above-average pace, while export orders growth accelerated at the fastest pace in more than 20 years.
Meanwhile, inventories of raw materials rose at the fastest pace since 1977.
According to the report, employment grew at a similar pace to the past three months – above the long run average – with further growth expected next quarter.
While skilled labour diminished as a likely constraint on output in the quarter ahead, concerns that labour availability would constrain investment picked up again. Manufacturers expect to spend more on training and retraining over the next twelve months.
Capacity pressures eased compared with the previous quarter, when the proportion of firms with spare operating capacity was the lowest in almost 30 years.
Efficiency is predominant driver of investment
Reportedly, firms intend to spend more on product and process innovation over the next year, while the balance of firms expecting to spend more on buildings rose to the highest in two years and well ahead of the long-run average. Efficiency remains the predominant driver of investment, closely followed by replacement of existing capital (e.g. machinery).
Average unit cost growth edged lower, and domestic price growth also slowed slightly, while expectations for price growth returned to around the long-run average from last quarter’s 44 year high.
Rain Newton-Smith, CBI Chief Economist, said: “Although manufacturing growth has slowed again this month, manufacturers continue to enjoy the fruits of stronger growth in Europe and the lower pound.
“For manufacturing to continue its resurgence in the years ahead, it will be critical for trade to remain as frictionless as possible with the EU – our closest and biggest trading partner. And, as the UK leaves the EU, it’s vital firms continue to pursue productivity gains, for example by sharing ideas on innovation, to improve their competitiveness overseas.”
- 20% of firms said they were more optimistic about the general business situation than three months ago and 24% were less optimistic.
- 30% of firms said the volume of output over the past three months was up and 17% said it was down.
- 32% of businesses reported an increase in new orders, and 18% a decrease.
- 34% of manufacturers said employee numbers were up, and 13% said they were down.
- Average unit cost growth (+24%) slowed slightly on the previous quarter (+29%), but remained well above the long run average (+11%).
Key findings – looking ahead:
- New orders growth for the next three months is expected to slow (+7%), with domestic orders expected to again be largely unchanged (-1%). Meanwhile, expectations are for softer growth in overseas orders (+11% from +25%).
- Output is expected to grow at a faster pace next quarter (+21%).
- Unit cost growth is expected to slow further next quarter (+10%), while domestic price growth is set to moderate (+18%).