South: CBI reports manufacturing prospects muted after Brexit

Manufacturing output and domestic orders saw firm growth over the past quarter, but both are expected to slow over the next three months, according to the latest quarterly CBI Industrial Trends Survey.

Following a slowdown in activity towards the end of 2015, which spilled over into the first half of this year, the survey of 506 manufacturers shows that the sector had a decent recovery over the three months to July. Output rose at its fastest in two years. 30% of firms said the volume of output over the past three months was up and 14% said it was down, giving a balance of +16%. This brought the pace of growth to levels last seen two years previously (+23% in July 2014).

Domestic orders and employment also improved. Export orders were flat, but improved on the fall seen in the previous quarterly survey. 32% of businesses reported an increase in total orders, and 23% a decrease, giving a balance of +9%, the highest since July 2015 (+9%).

Despite this improvement in activity, optimism about the business situation over the past quarter fell at the fastest pace since January 2009 in the aftermath of the referendum result. The outlook for the next three months is set to soften, with expectations for total new orders growth at their lowest since January 2012, output growth set to ease and headcount expected to fall slightly.

Looking ahead to the coming quarter, concerns over economic and political conditions abroad as a constraint on exports orders are at their highest level since 1983. Yet, competitiveness in international markets has improved at the strongest pace in over six years, with a further boost expected next quarter. As a result, export orders are set to rise at an above-average pace over the next quarter.

Investment is also expected to be lower over the coming year compared with the last twelve months, with planned capital expenditure on buildings and plant & machinery easing from the multi-decade highs seen in the previous survey. Nevertheless, both were still broadly in line with average levels.

Rain Newton-Smith, CBI chief economist, said: “Manufacturers picked up the pace over the second quarter, with output growing solidly. We’re also seeing encouraging signs of a boost to export competitiveness from a weaker sterling.

“So, it’s important now for the new Government to steady the ship with a plan, and a clear timetable, for negotiating the UK’s relationship with the EU. This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs.”