Manufacturing orders hit by export decline - CBI
Manufacturing orders have fallen to a four-month low, a survey from the Confederation of British Industry revealed on Monday.
The CBI industrial trends survey revealed the manufacturing orders balance fell to -1 in the three months to September, from +7 a month earlier, +11 in July, +13 in June and -3 in May. Economists had forecast a balance of +4 this month.
Collecting data from 409 firms, the survey revealed that export orders weakened to a level not seen since last October, down to +5 from +9 in the past three reports.
A parallel report released by BDO on Monday revealed UK export growth was the worst performing of the largest five EU economies in the last quarter, while earlier this month a purchasing managers' index survey from IHS Markit found sector activity fell to a two-year low amid a decline in exports.
Output growth slowed in the three months to September to +11% from +21% in August, but manufacturers expect output growth to pick up over the next three months.
Output remained above the long-term average, with 10 out of 17 sub-sectors reporting expansion as growth was driven predominantly by the mechanical engineering, food, drink & tobacco, plastic products, and metal products sectors.
“While manufacturing order books remain strong and output is still growing, Brexit uncertainty continues to cloud the outlook," said Anna Leach, the CBI's head of economic intelligence. "Heightened fears of a ‘no deal’ Brexit scenario have prompted some firms to move publicly from contingency planning to action."
Leach said the Chancellor's upcoming autumn budget could reform business rates, coupled with movement on capital allowances, to help encourage productive investment against this uncertain backdrop.
Tom Crotty, chair of the CBI Manufacturing Council and director of energy giant Ineos, said British manufacturers have benefitted from a healthy global economy and lower sterling exchange rate, but have been hit by the uncertainty surrounding the final six months of Brexit negotiations.
“In the coming months, manufacturers will be looking to the Government to protect the frictionless trade with the EU that they need to thrive," he said. "And it is important that measures to bolster competitiveness domestically – such as getting the Apprenticeship Levy fit for purpose – aren’t overlooked.”
The survey, said economist Sam Tombs at Pantheon Macroeconomics, corroborates the suggestion from Markit’s August PMI that the modest stimulus to growth in production from sterling’s depreciation is fading.
"Admittedly, growth in total orders is weakening from a high rate," he said, with the overall balance still is consistent with year-over-year growth in manufacturing output of about 2%.
"But the official manufacturing data has been much weaker than the surveys this year, with output falling by 0.1% quarter-on-quarter in Q1 and by a further 0.9% in Q2. In addition, growth in export orders usually lags movements in sterling by about one year; the exchange rate’s relative stability over the last year, therefore, has started to take the edge off growth in exports."
Based on past form, Tombs said the export orders balance will fall to around -5 by the end of this year. "Meanwhile, the chance that overseas customers re-jig their supply chains increases with every day that passes without a Brexit deal. As a result, we doubt that the manufacturing sector’s recovery is about to get back on track."