CBI: Latest manufacturing figures show competitiveness with EU at record high

Posted: 24 Oct 2016

MANUFACTURING output and orders grew over the last quarter, with export volumes growth the strongest for two and half years, according to the latest quarterly CBI Industrial Trends Survey.

The survey of 459 manufacturers reveals that competitiveness in EU markets rose at the fastest pace since the series began in 2000, with competitiveness outside the bloc also improving at the quickest rate since 2009.

Domestic demand grew modestly, while export orders rose for the first time in over a year. The outlook for demand over the next three months is generally positive, with export orders expected to rise further, along with more modest growth in domestic orders. But concerns persist about the availability of skilled labour, with almost a quarter of respondents observing that skilled labour availability could limit output over the next few months.

It is a period that saw Scunthorpe-based British Steel announce it would be back in the black for 2016. 

Optimism about the business situation fell slightly again following last quarter’s sharp decline. And numbers employed fell slightly for the first time since 2010 and look set to fall faster over the quarter ahead. But investment intentions improved following the decline last quarter, and investment plans for the year ahead are now more firmly above their long-run averages.for 

Following sterling’s sharp depreciation, unit costs rose at their fastest pace in three years, and are expected to continue growing at above their long-term average over the quarter ahead. This was accompanied by modest domestic price inflation, as manufacturers sought to pass on some of the cost increase to their customers. Despite welcome signs of improved export demand and competitiveness, the majority of exporting manufacturing firms have said that the fall in the pound since June has had a negative impact on their business. In a supplementary question asked alongside this month’s survey, 47% of manufacturing firms cited sterling’s depreciation as having a negative impact, against 32% citing a positive impact.

Rain Newton-Smith, CBI Chief Economist, said: "Manufacturers’ are optimistic about export prospects and export orders are growing, following the fall in Sterling.

“However, the weaker Pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead.

“Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important.

“Meanwhile, firms will be seeking further details on a long-term, industrial strategy from the Autumn Statement that combines sectors and places.

“Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible.”

Key findings – past quarter:

  • Export orders rose to +8%, the highest balance since April 2014 (+16%).
  • 27% of firms said the volume of output over the past three months was up and 18% said it was down, giving a balance of +9%.
  • 29% of businesses reported an increase in total orders, and 20% a decrease, giving a balance of +9%.
  • 23% of manufacturers said employment numbers were up, and 28% said they were down, giving a rounded balance of -5%: above the long run average (-9%) but the lowest since April 2010 (-12).
  • 20% of firms said they were more optimistic about the general business situation than three months ago, but 28% said they were less optimistic, giving a balance of -8%, an improvement on the previous quarter (-47%). Optimism about export prospects for the year ahead also recovered, (+9%), the highest since April 2014 (+27%).
  • Competitiveness in the EU (+34%) improved at the fastest pace since the question was introduced in 2000. It also rose in non-EU markets (+17%), the highest since April 2009 (+19%).
  • Average domestic prices (+8%) remained above the long-run average (-3%) for a second consecutive quarter, while average export prices stayed flat (+1%).
  • Manufacturers’ investment intentions compared with the previous twelve months for product and process innovation rose from +13% in the previous quarter to +23%, and spending on training and retraining also continued to grow (+15%), at albeit at a marginally slower rate than the previous quarter (+16%). Spending intentions for plant and machinery (0%) and buildings (-10%) returned above their respective long-term average.
  • The number of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months was +39%, down from the previous quarter’s 33 year high of +53%.
  • In a supplementary question asked alongside the October survey, 47% of manufacturers cited the depreciation in sterling since June as having had a negative impact on their business. 32% cited a positive impact and 19% said that the impact was neutral. 231 firms responded to this special question.

Key findings – next quarter:

  • Total new orders are expected to grow (+12%), as are domestic orders, though at a slower pace (+4%).
  • A rounded balance of +17% expect export orders to rise (29% expect an increase, and 13% a fall).
  • 27% of businesses anticipate a rise in output volumes, and 14% a fall, giving a balance of +13%.
  • 13% expect employment to increase, and 29% expect it to decline, giving a rounded balance of -15% - the lowest since October 2009 (-23%).

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