The UK manufacturing sector experienced a continued decline in output volumes in the three months to February according to the latest Confederation of British Industry’s (CBI) Industrial Trends Survey. However, manufacturers are optimistic about a rebound in production in the coming months, signaling a potential turnaround.
Key Findings of the Survey
- Output Decline: Output volumes fell in 16 out of 17 sub-sectors during the three months to February, with a decline of -12%, slightly better than the -13% recorded in January.
- Order Books: Total order books remained below normal at -28%, an improvement from -34% in January but still well below the long-run average of -13%.
- Export Orders: Export order books were also below normal at -36%, similar to January’s -38% and significantly lower than the long-run average.
- Price Inflation: Expectations for average selling price inflation eased to +19% from +27% in January but remain above the long-run average of +7%.
- Stock Levels: Stocks of finished goods were reported as more than adequate at +4%, though this is below the long-run average of +12%.
Improved Outlook for the Future
Despite the recent downturn, manufacturers are optimistic about the next three months, with expectations for output volumes rising to +8%, a significant improvement from -19% in January. This optimism may be driven by the need to rebuild depleted inventories and a potential recovery in demand.
Challenges Facing the Sector
Ben Jones, Lead Economist at the CBI, attributed the sector’s struggles to low domestic business confidence following the Autumn Budget and a subdued international environment. He also highlighted ongoing challenges such as rising prices, higher employment costs, and stubborn energy bills.
“The survey paints a downbeat picture of the manufacturing sector over the last three months,” said Jones. “Manufacturers expect to raise output in the quarter ahead, but with firms having rapidly run-down stocks of finished goods, it is possible that the need to re-build inventories partly explains this rebound.”
Call for Government Support
Jones emphasized the importance of government action to support the manufacturing sector, including:
- Industrial Strategy: Developing an international-facing industrial strategy to drive growth.
- Skills Development: Aligning skills with economic needs through reforms to the Apprenticeship Levy.
- Energy Costs: Addressing high energy bills to ease pressure on businesses.
“The government has several levers to create the right conditions for the ambitious delivery of growth set out by the Chancellor last month,” Jones added.
Survey Methodology
The CBI’s Industrial Trends Survey is based on responses from 352 manufacturers across the UK, providing a comprehensive overview of the sector’s performance and outlook.
Looking Ahead
While the UK manufacturing sector faces significant challenges, the improved outlook for the next quarter offers a glimmer of hope. With the right support from the government and a focus on innovation and investment, the sector could be poised for a recovery.
As manufacturers work to rebuild inventories and adapt to changing market conditions, collaboration between businesses and policymakers will be crucial to driving long-term growth and competitiveness.
