Manufacturing sector stablises in Q1 but orders still weak

OUTPUT in the manufacturing sector was stable during the first quarter of the year but the sector struggled with reduced order levels, latest data has shown.

The CBI’s quarterly industrial trends survey surveyed the responses of 472 manufacturers spread around the UK.

It concludes that total new orders edged down in the three months to April, matching the decline in the previous quarter. This was driven by a dip in export orders, although domestic orders were also flat.

Average input costs rose at the fastest pace in two years, but firms found it difficult to pass on increased costs, with both domestic and export prices continuing to fall.

Meanwhile, employment in the manufacturing sector grew at a slightly stronger pace this quarter.

The outlook from firms for the upcoming quarter is a little firmer. Both output and demand are expected to grow, with the latter underpinned by expectations for improved export orders.

Nevertheless, optimism levels over export prospects for the coming year has flat-lined.

Looking to the year ahead, manufacturers’ plans for investment in buildings, and in plant & machinery are said to be at robust levels. Stronger investment intentions were primarily driven by chemicals and food & drink manufacturers.

Rain Newton-Smith, CBI’s director of eonomics, said: “Manufacturing has yet to pick-up after a flat start to the year, with falling orders providing little impetus for production. While expectations for the upcoming quarter are encouraging, manufacturers are still facing sizeable external headwinds.

“The falling exchange rate should give some support to manufacturers, and investment intentions are strong. With the expected pick-up in exports, it’s likely that firms will be looking to increase capacity.

“We need to continue to help manufacturers to export their products to markets across the globe. While businesses should take the lead, Government also has a role to play through the advice provided by UKTI and our Embassies.”

Key findings of the new survey:
•    21% of businesses reported an increase in total orders, and 25% a decrease, giving a balance of -4%, the same balance as January
•    The balance for new domestic orders (-2%) was almost unchanged from the previous quarter (-3%), but export orders (-7%) fell (from January’s -2%)
•    25% of manufacturers said employment numbers were up, and 21% said they were down, giving a rounded balance of +5%, above the long run average (-9%)
•    14% of firms said they were more optimistic about the general business situation than three months ago, and 19% less, giving a rounded balance of -5%. This was nearly unchanged from the previous quarter (-4%)
•    24% of businesses reported a rise in output volumes, and 23% a decrease, giving a balance of +1%
•    Average unit costs (+8%) rose at their fastest since April 2014 (+13%), with growth just below the long run average (+10%)
•    Manufacturers’ investment intentions compared with the previous twelve months improved for buildings (+6%), plant and machinery (+17%) and product and process innovation (+18%). They fell from the previous quarter, however, for training and retraining (+19%, down from +24% in January)
•    The number of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months rose slightly (+31%) from last quarter (25%)
•    Competitiveness in the EU was flat (-1%), the first time that it has not fallen since April 2013 (+3%). Competitiveness in non-EU markets was also unchanged (-1%) compared to a fall in the previous quarter (-9%).

Key findings – next quarter:
•    27% of manufacturers expect total new orders to increase, and 13% expect them to fall, giving a balance of +14%, well above the average (+5%)
•    A rounded balance of +12% expect new domestic orders to rise (22% expect an increase, and 11% a fall)
•    A +20% balance of manufacturers expect new export orders to go up (30% expect a rise, and 10% a fall), the highest since July 2014 (+23%)
•    30% of businesses anticipate a rise in output volumes, and 13% a fall, giving a balance of +17%, the highest since October 2014 (+18%)
•    23% expect employment to increase, and 21% expect it to decline, giving a balance of +2%
•    Average unit costs are expected to fall (-6%), the lowest outlook since January 2009 (-8%).

Separately, the CBI published monthly figures for April, which showed that total order books improved slightly (-11%, from -14% in January), and export order books also strengthened (-13%) to their highest since last August (-8%).