Manufacturing confidence slumps to 30-year low

UK manufacturers are anticipating the sharpest economic contraction in 30 years according to the latest CBI Industrial Trends Survey.

Domestic and overseas orders are continuing to be hit by the global economic slowdown, with firms’ perceptions of total order book levels no better than in October, the weakest for five years.

In a rapid turnaround from four months ago, however, manufacturers’ output prices are no longer expected to rise.

The survey reveals that order books are continuing to suffer in the slowdown – with 16% reporting their total order book is above normal, while 53% say it is below normal.

Last month’s figure (a balance of -39%) was the lowest since October 2003.

Export order books also reflect the overall slowdown, with 13% of firms reporting above normal volumes compared with 44% below normal, giving a balance of -31%. The balance in October (-32%) was the weakest for five years.

Due to the weak demand, manufacturers’ inventories have built up to their highest level since December 2001.

A balance of +25% of firms says present stock levels are more than adequate to meet demand.

Manufacturers do not expect to be able to raise prices in the next three months.

While 20% of firms expect average domestic prices will rise, an equal percentage (20%) expects them to come down, producing a flat balance (0%). And 58% of firms said in the survey they expect prices will stay the same.

Ian McCafferty, the CBI’s Chief Economic Adviser, said: “The outlook for manufacturers has deteriorated considerably since the banking crisis took a turn for the worse in October. Expectations for output are now the gloomiest in 28 years, while firms’ order books remain weak.

“With a sharper and more prolonged UK recession in prospect, conditions are going to remain tough for some time. A slowing global economy, particularly in the eurozone, makes the immediate benefits of a weak pound fairly muted for exporters. But the weakening in factory gate prices will feed through to declining inflation in coming months, giving the Bank of England room for further significant rate cuts.”