Insight 42 - Magazine - Page 20
SENTIMENT DROPS IN MANUFACTURING,
AS OUTPUT VOLUMES WEAKEN
S
entiment across the manufacturing
sector fell in October and at the
fastest pace in two years, according
to the CBI’s latest quarterly Industrial
Trends Survey.
Manufacturing output volumes fell over
the quarter to October, though less rapidly
than in the quarter to September. Output
is expected to be broadly unchanged over
the next three months.
Total new orders fell in the quarter to
October, reflecting the sharpest decline in
domestic orders since July 2020, as well
as lower export orders. A further decline
in new orders is expected, with over two
thirds of respondents citing the strength
of order books as a factor likely to limit
output over the next three months.
Pressures on costs and prices have
diminished compared to July. Growth in
average costs eased to its slowest pace in
four years in the quarter to October, with
a similar increase expected in the coming
quarter. Domestic and export selling price
inflation has also eased, with the latter
falling for the first time in four years.
Overall selling prices are expected to be
stable in the three months to January.
The outlook for hiring and investment
remains subdued. Manufacturing
headcount actually rose for the first
time in over a year over the past quarter,
but numbers employed are expected
to remain unchanged over the coming
quarter. Meanwhile, investment intentions
for the year ahead have weakened across
the board.
The survey, based on the responses of
322 manufacturing firms, found:
• Output volumes fell slightly in the quarter
to October, after falling at a rapid pace
in September (weighted balance of
-6%, from -20% in the three months to
September). Firms expect volumes to
be broadly unchanged in the next three
months.
• Output rose in just 4 out of 17 subsectors, with growth in the motor
20
vehicles & transport equipment,
chemicals, mechanical engineering and
plastic products sub-sectors offset by
declines in the rubber products, metal
manufacture and furniture & upholstery
sub-sectors.
• Total new orders fell in October, at a
slightly faster pace than the previous
quarter (-13% from -9% in July). Domestic
orders fell over the quarter (-22%, from
-15%) as did the volume of new export
orders (-11%, from +3%). Manufacturers
expect domestic (-11%) orders to fall again
over the next three months, while export
orders are anticipated to be unchanged
(-1%).
• Business sentiment deteriorated in
October, at the fastest pace in two years
(-24%, from -9% in July). Export optimism
for the year ahead also fell (-16%, from
0%).
• Investment intentions for the year
ahead weakened compared to July.
Manufacturers expect to reduce
investment in buildings (-21%, from -11%
in July) and in plant & machinery (-12%,
from +6%). Investment in training &
retraining (-3%, from +7%) and in product
& process innovation (0% from +18%) is
anticipated to be unchanged.
• The main constraint on investment was
uncertainty about demand (cited by 52%
of manufacturers), followed by inadequate
net return (38%), a shortage of labour
(26%, the highest since January 2023),
and a shortage of internal finance (19%).
Concerns around the cost of finance
have retreated from a 33-year high set in
January 2024 (excluding the pandemic
period) but remain more than double the
long run average (11%).
• Average costs rose in the quarter to
October, at the slowest pace in four
years (+25%, from +52% in July; longrun average of +18%). Costs growth is
expected to remain elevated in the quarter
to January (+27%, which were also the
weakest expectations in four years).
bIZ4BIZ INSIGHT MAGAZINE | DECEMBER 2024
• Average domestic prices increased over
the three months to October (+10%,
from +15% in July). Export price inflation
turned negative for the first time since
the quarter to October 2020 (-7%, from
+22% in July). Domestic prices are
expected to be unchanged in the next
three months (0%), whereas export prices
are anticipated to fall again (-7%).
• Stocks of raw materials rose marginally
in the quarter to October (+4%), while
stocks of both work in progress (+1%)
and of finished goods (+1%) were broadly
stable.
• Manufacturers expect stocks of work in
progress (-2%), of finished goods (-2%),
and of raw materials (-3%) to be broadly
unchanged in the next three months.
• Numbers employed rose in the quarter
to October, for the first time since July
2023 (+7%, from 0% in July). Firms
expect numbers employed to be broadly
unchanged in the next three months (-3%).
Ben Jones, CBI Lead Economist, said:
“Sentiment in the manufacturing sector
appears to have soured in recent months.
Demand has softened both at home and
abroad. And although cost pressures have
eased, costs are still rising faster than
prices, implying a further squeeze on
margins.
“The recent downturn is expected to
bottom out in the coming quarter, which
is encouraging. But amid a more uncertain
outlook manufacturers have scaled back
their plans to invest in buildings, capital
equipment, innovation and training.
“Manufacturers will be looking to the
Chancellor to deliver a confidenceboosting budget that supports business
and greases the wheels of investment.
While possible tax rises remain a concern,
firms believe that clarity over future tax
plans, measures to enhance productivity,
and the country’s net zero trajectory can
all help cement the path to long-term
growth.”
