Manufacturers expect continued growth but at slower rate

UK manufacturers continue to report healthy order books and expect further output growth in the coming quarter, though at a slightly slower pace than over the past few months, new data suggests.

The CBI said manufacturing demand remained strong in June. Of the 457 manufacturers responding to its latest monthly Industrial Trends Survey, 27% of firms said total orders were above normal, while 26% said they were below normal. The resulting balance of +1% is well above the long-term average (-18%), and is a slight improvement on the previous month’s balance of -2%.
 
Export orders books also picked up slightly in June, with 27% of firms saying they were above normal, and 27% below normal. The resulting balance of 0% compares with -3% in May, and is significantly above the long-term average (-21%). It is a continuation of the broader trend of improvement that has been evident over the past two years.
 
However, economists had been predicting the bounce, partly as a result of the skewed figures in May due to the disruption caused by the Royal Wedding and Easter holiday.

Nevertheless, the CBI said the manufacturing firms responding to its survey said they still expected solid growth in output in the coming quarter. While 28% predicted output would rise in the coming three months, 14% said it would fall. The resulting rounded balance of +13% is down slightly on very strong expectations seen over the past five months, but still exceeds the long-term average (+5%).
 
However, price pressures remain a concern, with 31% of manufacturers predicting they will raise output prices over the coming quarter, and 5% expecting to lower prices. The resulting rounded balance of +27% is up on last month’s +24%, and remains well above the long-term average of +1%.
 
Ian McCafferty, CBI chief economic adviser, said: “UK manufacturers currently have healthy order books. Factory output is still set to rise solidly over the coming quarter, but expectations for growth have moderated compared with recent months, when output prospects were particularly strong.

“This reflects the slightly softer patch for manufacturing evident in other economies, much of which appears due to the temporary supply chain disruptions following the tsunami in Japan.
 
“Inflationary pressures remain acute. High commodity prices and import costs mean firms still expect to raise factory gate prices markedly over the next three months.”
 
A balance of +3% of firms report adequate stock levels, down from last month’s +9%. Stock levels have remained below the long-run average (+14%) since January 2010.