Factory orders ‘see biggest drop in three years’

Factory orders are down, a CBI study has found.

Factory orders are down, a CBI study has found. - Credit: Archant

UK factory orders suffered their biggest fall in three years in the quarter to October as slow domestic demand added to already weak exports, a report said.

The latest CBI Industrial Trends Survey showed the balance of firms who increased their total orders fell to minus 8, down sharply from plus 9 in July, and its lowest level since October 2012.

It added that the balance of export orders for the past three months tumbled to minus 17, falling at its fastest pace since October 2012, possibly down to the continued strength of the pound.

Also, new domestic orders fell over the quarter to a balance of minus 11, its lowest level since April 2013.

The report added that worries about price competition rose and the number of manufacturers citing uncertainty about demand as a constraint on investment was the highest in two years.

However, firms said they expected overall conditions to stabilise over the coming quarter.

CBI director of economics Rain Newton-Smith said: “Manufacturers have been struggling with weak export demand for several months, because of the strength of the pound and subdued global growth.

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“But now they’re also facing pressure back home as domestic demand is easing.

“While on balance, firms expect orders to stabilise next quarter, it’s disappointing that firms are having to scale back their investment in innovation.”

Ms Newton-Smith added that the CBI wanted the Government to protect export and innovation spending, alongside other growth-boosting areas, in its comprehensive spending review in November.

Earlier this month the International Monetary Fund warned that the risks of a global financial crash had increased as the slowdown in China and potential US rate rises threaten the stability of debt-laden emerging economies.

IHS chief UK and European economist Howard Archer said: “This is a thoroughly disappointing survey through and through which indicates that manufacturers’ struggles are intensifying as a moderation in domestic demand adds to a still weakening export outlook.

“Persistent and seemingly deepening manufacturing weakness is very worrying for hopes that UK growth can ultimately become more balanced and less dependent on the services sector and consumer spending.”

Mr Archer added that the CBI survey indicates that manufacturing output is in “grave danger” of contracting again in the fourth quarter of the year - after almost certainly falling for a third quarter in a row in the third quarter of 2015.