Manufacturing
activity grew modestly in the quarter to April, while stocks rose at a record
pace, according to the latest quarterly CBI Industrial Trends Survey.
The survey of 270
manufacturing firms showed that while output growth sped up slightly in the
three months to April, it remained relatively modest overall. Manufacturers
expect output volumes to be broadly flat in the next three months.
Total new order
volumes grew slightly in the three months to April, driven by a marginal
increase in domestic orders, while export orders were steady. Manufacturers
expect total new orders to fall in the next three months, with both domestic
and export orders set to decline.
The three months to
April saw an unprecedented acceleration in the growth of stocks held by the
manufacturing sector. Stocks of raw materials, work in progress, and finished
goods all grew at their fastest (respective) paces on record. Looking ahead,
though, manufacturers expect stocks to fall across the board in the next
quarter.
While business
optimism continued to fall in the three months to April, it did so at a slower
pace than the previous quarter. Similarly, sentiment regarding export prospects
for the year ahead also fell, but to a lesser extent than in the previous
survey. However, the proportion of firms citing political/economic conditions
abroad as a factor likely to limit export orders in the next three months was
at its highest since January 1983.
Rain Newton-Smith,
CBI Chief Economist, said: “UK manufacturing activity is just about holding up,
but the unprecedented pace of stockpiling suggests that Brexit contingency
planning stayed at the forefront of manufacturers’ minds.
“It’s encouraging
that securing a Brexit extension has removed the cliff edge of a no-deal for
now. However, it does not give manufacturers the longer-term certainty that
they desperately need to invest in their businesses. For the good of the UK
manufacturing sector, politicians must use this time well and come back with a
renewed effort to get a deal over the line.”
Tom Crotty, Group
Director of INEOS and Chair of CBI Manufacturing Council, said: “A Brexit cliff
edge has been avoided for now, but manufacturers still face an unacceptable
level of uncertainty, and the prospect of a damaging no deal remains very real.
“The political
deadlock on Brexit has continued for far too long. Politicians must find a
compromise on a deal that can pass through Parliament as a matter of urgency.”
Investment
intentions for the year ahead remained poor but were less negative compared to
recent quarters across all categories surveyed. Firms still expect to spend
less on buildings and plant & machinery, but the survey balances were less
negative than in January. Meanwhile, manufacturers expect to spend roughly the
same amount on product & process innovation and training & retraining
in the year ahead, following three quarters of negative investment intentions.
The survey saw a
record high proportion of manufacturers (since October 1979) cite replacement
as a reason for expected capital expenditure in the year ahead. However, the
proportion of firms reporting labour shortages as a likely limitation to
capital expenditure in the year ahead also rose to a new record high.
Across the economy
as a whole, stockbuilding is likely to have supported economic growth in early
2019. However, business surveys suggest that underlying conditions remain more
subdued, as Brexit uncertainty and slower global growth bite further on activity.
For more detail on our view of the outlook, see our economic
forecast.
Key findings:
- 18% of firms said they were
more optimistic about the general business situation than three months ago
and 31% were less optimistic, giving a balance of -13%. Optimism about
export prospects for the year ahead (-21%) fell at a slower pace than in
the last quarter (-32%)
- 34% of firms said the volume
of output over the past three months was up and 23% said it was down,
giving a balance of +11%
- 38% of businesses reported an
increase in new orders, and 32% reported a decrease, giving a rounded
balance of +5%, compared to +3% in the three months to January. Domestic
orders picked up slightly (+4% from +0% in January), and export orders
were steady (-3% from +9 in January)
- Stocks of raw materials
(+39%), work in progress (+21%), and finished goods (+25%) all grew at
their fastest respective paces on record (since 1958 for raw materials and
finished goods, and since 1977 for work in progress)
- 26% of manufacturers said
employee numbers were up in the quarter to April, while 18% said they were
down, giving a rounded balance of +9% (from -4% in January)
- Growth in average unit costs
(+29%) in the quarter to April continued at a similarly strong pace to the
previous quarter (+26%), and remains well above the long-run average
(+12%)
- Average domestic prices in
the three months to April (+11%) grew at a slightly faster pace than the
three months to January (+7%)
- Average export prices were
broadly steady (+3%, from +0% in the three months to January).
Key findings –
looking ahead:
- Output volumes in the next
three months are expected to be broadly flat (-2%)
- New orders over the next
three months are expected to fall (-8%), with both domestic orders (-7%)
and export orders (-18%) declining
- The proportion of firms
citing political/economic conditions abroad as a factor likely to limit
export orders in the next three months (54%) was at its highest since
January 1983
- Stocks of raw materials
(-7%), work in progress (-9%), and finished goods (-8%) are expected to
fall in the next three months
- Employee numbers are expected
to be roughly flat in the next three months (+3%)
- Average unit costs are
expected to grow at a similar rate next quarter (+31%)
- Domestic price inflation
(+1%) is expected to be flat next quarter, while export prices (-5%) are
expected to fall slightly
- Planned spending on plant
& machinery (-14% from -18% in January) and buildings (-18% from -24%
in January) for the year ahead remain negative
- Meanwhile, manufacturers
expect investment in training & retraining and product & process
innovation in the year ahead to be broadly flat (+2% from -11% and +2%
from -8%, respectively, in the previous quarter)
- The factor most cited as
likely to limit investment plans in the year ahead was demand uncertainty
(61%), with concerns at their highest since January 2013. Meanwhile,
concerns over labour shortages rose to a further record high (27%).
