CBI: UK Manufacturing Sector Gearing Down
Further evidence of an upcoming slowdown in the UK economy was revealed when the Confederation of British Industry (CBI) released its December Industrial Trends Survey, a snapshot of the manufacturing sector, on December 13. The survey showed that, while manufacturers still consider total order books broadly normal, demand is easing slightly. And although output is expected to continue to grow next quarter, the balance of firms reporting this prospect has weakened.
The survey, which drew 557 respondents, also revealed that manufacturers intend next quarter to raise prices at the same pace they have been over the past few months, indicating confidence about continuing to be able to pass on some of their rising energy and commodity costs. The balance of manufacturers intending to raise their prices over the coming three months is +15%. This figure is lower than November’s +21% but still much higher than the long-term average of –2%.
Some 25% of firms had above-normal order books, according to survey results, and about 22% were below normal. The balance of +2% (rounded) is weaker than last month’s near-12-year high of +8% but stronger than CBI’s reported long-term average of –15%.
Demand appears to be shifting from the domestic market to overseas. Export order books saw their first positive balance (+2%) since February. CBI believes this likely reflects the weakening of the pound against the euro, encouraging more UK exports to Europe.
Manufacturers’ expectations for output growth have fallen as 2007 came to an end. The December balance (+3%) still indicates growth, but the figure is the lowest monthly balance since January 2006 and well below the average of +15% seen over the course of this year.
Commenting on the survey results, CBI chief economic adviser Ian McCafferty says that, because the UK manufacturing sector has become leaner in recent years, it has largely been able to withstand the triple whammy of rising commodity costs, a strong pound relative to the US dollar, and five interest rate increases. “Although firms are now reporting weakening demand and expect output to grow only modestly next quarter,” explains McCafferty, “it is a case of the sector changing from fifth gear to fourth, certainly not juddering to a halt.”
In justifying his untroubled appraisal, McCafferty points to the fact that firms feel comfortable introducing price increases in the next three months. “And,” he adds, “even as the domestic market slows, they are enjoying a period of relatively strong demand from overseas, as the pound has been falling against the euro and stimulating trade with the Eurozone.”
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