Manufacturing industry still stagnant, but does the latest CBI survey point to a recovery on the horizon?

 
Jake Cordell
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Cheaper oil and other input prices have not translated into any significant improvement of fortunes for the manufacturing industry - yet
Cheaper oil and other input prices have not translated into any significant improvement of fortunes for the manufacturing industry - yet (Source: Getty)

The manufacturing industry had a mixed start to the year, though the latest CBI industrial trends survey, out today, showed tentative signs of a pick-up over the next few months and provided some grounds for optimism.

Manufacturers reported output was stable over the first three months of 2016, while orders dipped slightly but employment picked up.

The number of firms reporting a bigger order sheet came in at 21 per cent, while 25 per cent said they took on fewer bits of business in the first quarter - an unchanged balance of minus four since the January's results.

Read more: Spike in level of UK firms in balance sheet trouble ahead of Brexit vote

Despite weaker orders, more firms said they were taking on staff than letting them go, with 25 per cent hiring staff over the quarter and 21 per cent shrinking their workforce. The balance of four per cent was comfortably above the long run average of minus nine per cent.

Analysts pointed to strong expectations of growth over the next three months as a bright spot for the otherwise stagnant industry, but were divided over how the EU referendum might affect that outlook.

CBI Industrial Trends Survey: Outlook for next three months

 

Firms expecting orders to increase - 27 per cent

Firms expecting orders to decrease - 13 per cent

 

Export orders to increase - 30 per cent

Export orders to decrease - 10 per cent

 

Domestic orders to increase - 22 per cent

Domestic orders to decrease - 11 per cent

 

Employment to increase - 23 per cent

Employment to decrease - 21 percent

“Firms’ outlook for the upcoming quarter is a little firmer. Both output and demand are expected to grow, with the latter underpinned by strong expectations for export orders,” the CBI said.

“April’s survey offers hope of improvement to come,” said Oliver Jones, assistant economist at Capital Economics.

One third of respondents to the survey said they expected their export orders to grow in the second quarter of this year, compared to just 10 per cent who thought they would decline. This was the strongest outlook for exports since July 2014.

Read more: Small manufacturing sector to see GDP growth shrivel in first quarter of the year.

“This suggests that manufacturers aren’t overly worried about the impact of June’s EU referendum,” said Capital Economics’ Jones.

However, Howard Archer of IHS Global, warned that the referendum “may well constrain business demand for capital goods and consumer demand for big-ticket consumer goods,” which would hit the sector.

“The suspicion remains that the upside for manufacturing activity is likely to be limited until June’s EU referendum is out of the way, given the heightened uncertainties,” he added.

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