Economy: Manufacturing output to fall further, says CBI

UK manufacturers reported a further slight weakening in total order books in December, while export orders remained well below their long-run average, the CBI said today.

Activity in the manufacturing sector remained depressed in December. Total order books deteriorated slightly further, and export order books remained well below their long-run average. As a result, firms anticipate a fall in production over the next three months, with expectations negative for the third month running.

Pricing pressures remain muted compared with earlier this year, albeit edging higher on recent months.

Total order books fell slightly further below normal in December, while export order positions remained well below their long-run average for the second month running. In both cases, investment goods firms reported the largest deterioration in order books.

Manufacturers once again expect to reduce output over the coming quarter, with the survey balance staying negative for the third consecutive month.

In line with a significant deterioration in order books, investment goods firms expect output to fall over the coming quarter. Indeed, expectations in this sector have turned negative for the first time since July 2010.

Expectations for output price inflation have edged slightly higher. However, they remain very subdued compared to the strong pricing pressures in the first half of 2011.

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Expectations this month were driven by consumer goods firms; by contrast, those in other sectors remained muted.

Stock adequacy was unchanged on last month, still broadly in line with its long-run average. This reflected only minor changes in inventory positions at the sectoral level.

As a result, firms expect production to fall over the coming quarter, according to the CBI’s latest monthly Industrial Trends Survey.

Of the 434 manufacturers responding, 18% reported total order books to be above normal, while 41% said that they were below. The resulting survey balance of -23% is the lowest since October 2010 (-28%).

Export demand also remained depressed. While 12%c reported export order books to be above normal, 44% said that they were below. The resulting balance of -32% is the lowest since January 2010 (-33%) and still well below the long-run average (-21%).

In line with weakened order books, manufacturers expect to reduce production over the next three months. While 24% of firms believe output will rise in the next quarter, 32% expect to cut back on production. The resulting rounded balance of -8% is the third consecutive negative survey balance.

Richard Tunnicliffe, CBI East of England Regional Director, said: “Conditions in the UK manufacturing sector remain difficult, with demand both at home and abroad subdued. The weaker export performance no doubt reflects on-going instability in the Euro area, our biggest export market, and its knock-on impact on prospects for the real economy.

“A clear and orderly resolution to the crisis remains essential to prevent further adverse effects on both UK manufacturing and the wider economy, and to lift business confidence.”