The manufacturing sector expects a solid rise in output over the next three months driven by predictions for a stronger increase in export orders, the CBI announced recently.

Of the 420 manufacturers that responded to the Quarterly Industrial Trends Survey, 32% expect a rise in output volumes, and 14% a fall, giving a balance of +18%. This follows a figure of +9% for the last three months.
This is primarily driven by expectations of a faster increase in exports in the coming quarter, with a balance of +15% expecting volumes of export orders to rise. Domestic order growth is more subdued with a balance of +2% expecting an increase.

Looking ahead to the next quarter, the volume of total new orders is expected to grow to a balance of +12%, similar to the +11% recorded for the past three months.

Following four consecutive quarters of rising optimism, overall business sentiment was little changed on three months ago. The survey showed that 24% of manufacturers said that they were more optimistic than the past quarter, and 23% said they were less so, giving a rounded balance of +2%.

Employment and investment trends in the manufacturing sector are positive. Employment saw the greatest rise since January 1989 with a balance of +6% of firms saying that they had taken on new staff.

In addition, investment intentions for the coming year have strengthened further. Manufacturers said they plan to spend more on plant and machinery over the year ahead – a balance of +10% said that they would increase capital expenditure in this area, with investment plans at their strongest since July 1997 (+21%).

Ian McCafferty, the CBI’s chief economic adviser, commented: “The recovery in the manufacturing sector is well grounded and looks set to continue, despite a soft patch last quarter, when production growth slowed as companies had expected. Over the next three months, firms predict a strong rise in output driven by predictions of firmer export orders growth. It is particularly encouraging that companies have taken on more staff and plan to invest more in plant and machinery in the year ahead.

“However, cost pressures show no sign of receding, driven by higher commodity prices and import costs,” he advised. “This is putting increasing strain on manufacturers’ profit margins, given that costs are not being fully passed on as higher prices.”

Looking ahead, credit or finance is seen as a constraint to output growth over the next quarter by 9% of manufacturers, compared with 3% in July. This has risen for the first time since January and is back above its long run average (4%).

But, fewer manufacturers (71%), highlighted orders and sales as a factor likely to limit their activity over the coming quarter, compared with 77% in July. This figure is the lowest since January 2008 (69%).

More companies (a balance of +20%) also expect to increase expenditure on product and process innovation over the next year compared to the previous twelve months. This is the highest figure since January 2008 (+20%).

CBI
www.cbi.org.uk