Manufacturing output slumps in the UK

Manufacturing output slumps in the UK

Manufacturing output in the UK fell for the first time since February 2021 in the three months to August, with no growth expected in the three months ahead. That’s according to data provided bythe latest monthly Industrial Trends Survey from the CBI and Accenture.

The bad news was not only confined to output as manufacturers also reported order books falling below “normal” levels, and expectations for selling price inflation picking up.

The survey which was conducted using responses from 257 manufacturers, found that:

  • Manufacturing output volumes fell in the three months to August (balance of -7%, from +6% in three months to July), marking the first time since February 2021 that output has declined. Output is expected to be broadly flat in the next three months (-2%), making a significant worsening of expectations from just a few months ago.
  • Output increased in 10 out of 17 sectors in the three months to August. The fall in headline growth reported this quarter was largely driven by food, drink & tobacco, mechanical engineering and paper, printing & media.
  • Total order books were reported as below “normal” for the first time since April 2021 (-7% from +8% in July). Export orders were also seen as below par, to the same extent as last month (-12% from -12%).
  • Stocks of finished goods were seen as broadly adequate in August, after being seen as less than adequate in the previous quarter (+2% from -7% in July).
  • Expectations for average selling price inflation have picked up (+57% from +48%) and remain well above the long-run average (+6%).

Alpesh Paleja, CBI Lead Economist commented on the disappointing figures, saying

“From rising prices to bottlenecks in supply chains, manufacturers continue to operate against a background of high input costs and significant operational delays. When coupled with an oncoming economic downturn, it’s not surprising to see orders and activity ebb away as we move through the year.

“With expectations for future growth subdued, steps will need to be taken to shore-up confidence in the short to medium term – particularly supporting vulnerable firms and consumers with energy price rises.

“Against a backdrop of weaker activity, a permanent replacement for the super-deduction and bold action on business rate reform remain the best ways to support capital investment plans.”

The data from the survey was backed up by a report from Reuters which indicated that Britain’s private sector slowed to a crawl in August as factory output fell and the larger services sector eked out only a modest expansion, adding to signs that recession may be looming.

The Reuters report showed that while activity in the services sector almost held at July’s pace, the manufacturing component tumbled to 46.0 in August from 52.1 in July, its lowest since May 2020 in the depths of the COVID-19 pandemic and below all forecasts in a Reuters poll.

Commenting on these troubling reports, S&P Global economist Annabel Fiddes said “Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard.”

 

Challenging times ahead for UK manufacturers.