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UK manufacturers report
orders growth has held up with exports remaining strong - CBI
Industrial
Trends Survey
UK manufacturers’ more
pessimistic expectations three months ago did not materialise and
the sector has proved resilient in the face of continuing concerns
over a wider economic slowdown in the wake of the credit crunch, the
latest CBI Industrial Trends Survey
reveals today.
The quarterly version of
the survey shows that firms’ orders growth has held up, with export
orders in particular remaining healthy. But rising food and energy
costs show no sign of abating and firms expect their domestic prices
to go up at the fastest rate for 13 years. Export prices are also
expected to rise faster than they have for over two years.
Demand has continued to
grow, with 28% of firms saying total new orders increased in the
three months to January and 17% reporting a decrease. This balance
of +11% exceeded expectations and was broadly in line with the
previous four surveys. Slower growth is expected in the next three
months (a balance of +4%).
On the monthly measure,
total order book levels were healthy - a balance of +2% said they
were above normal in January, the same as in April 2007 and the
highest figure in a quarterly survey since April 1995 (+8%).
Demand this quarter was
for the most part driven by export orders, no doubt helped by the
weaker pound - though much of the currency’s depreciation occurred
after this survey was conducted.
A balance of +10% of
firms reported a rise in overseas orders, compared with a broadly
flat balance for domestic orders (-1%). Exports grew at the fastest
rate since October 1995 (+11%). Concerns that political and economic
conditions abroad will limit export orders over the coming three
months have increased slightly since October and expectations are
for flat growth in the next three months.
Growth in manufacturing
output remained firm, with a balance of +8% broadly in line with the
positive expectations in October. Similar rates of growth are now
expected (a balance of +9%).
Nevertheless, sentiment
fell for the second consecutive quarter, with a balance of 18 per
cent of firms less optimistic about the business situation than they
were three months ago.
In spite of the drop in
sentiment, investment intentions over the next 12 months are broadly
unchanged after October's dip, and spending plans for product and
processes are their most positive since 1997.
Despite the ongoing
credit squeeze, manufacturing firms do not report that access to or
cost of external finance is a factor likely to limit either output
or investment expenditure.
Skilled labour shortages
are less likely to constrain output and investment expenditure than
in the last six months. Manufacturing employment fell in the last
three months (for a balance of -14%), in line with the long-term
average (-15%). A balance of -19% expects to reduce staff numbers in
the next three months.
Based on the survey, the
CBI estimates 13,000 jobs were lost in the sector in the last
quarter of 2007 and that 24,000 will be lost in Q1 of 2008, bringing
the total employed in manufacturing to 2,873,000.
Average unit costs grew
(for a balance of +25%), continuing the pattern of rapid growth in
the last three years. Much of this has been due to the long rise in
oil and metal prices, but more recently has been compounded by other
raw materials such as foodstuffs.
As a result, firms’
prices have continued to go up, at a similar rate to the past year.
Domestic prices rose for a balance of 13% and export prices for a
balance of 5%, the strongest rate of increase since July 2005 (+5%).
Domestic prices look set to continue going up, and at an expected
rate (a balance of +21%) not seen since January 1995 (+33%).
Ian McCafferty, CBI Chief Economic Adviser, said:
“Manufacturers share similar concerns to other sectors about the
economy – a fear that rising costs might become combined with
slowing demand.
“Thankfully, the
expected wobble in demand didn’t materialise in the last three
months and orders for British-made goods have held up, particularly
from abroad. What we are seeing is part of a necessary rebalancing
of the economy, in the face of slowing consumer spending.
“The dilemma the Bank
now faces over interest rates is to weigh risks of a slowdown with
the real and present pressure on prices in both factories and other
areas of the economy. Price pressures from oil and food costs will
bring higher inflation in the short-term and may push the inflation
rate further above target during 2008, making the Bank's decision
even more difficult.”
1. A balance is the
difference between the percentage of manufacturers reporting an
increase and those reporting a decrease.
2. The January 2008 CBI Industrial Trends Survey was conducted
between 13th December 2007 and 9th January 2008. 482 manufacturing
firms replied. During the survey period the pound averaged €1.32 and
$1.99, while Brent Crude averaged $93.76 per barrel, compared with
€1.44, $2.03 and $78.24 per barrel in the July survey period. |
