UK Manufacturing Experiencing Stop-Start Recovery Despite Sharp Drop in Export Orders, Says CBI
Manufacturers anticipate a slight increase in output in the three months leading up to September, as the economy progresses towards recovery.
Manufacturers have been experiencing a stop-and-start recovery trend in recent months, with the most recent data indicating a significant decline in export orders volume, according to economists.
In June, the monthly gauge of new orders reached a three-month high of -18 percent, up from -33 percent in May. However, it still fell slightly below the long-term average of -13 percent.
“We’ve observed a stop-and-start recovery in manufacturing output in recent months, with increased activity primarily concentrated in a few manufacturing sub-sectors,” stated Ben Jones, CBI lead economist.
Mr. Jones noted that order books continue to be “soft,” with export orders remaining below average at -39 percent in June, down from -27 percent in May, marking the weakest performance since February 2021.
“The significant decline in export order books is particularly noteworthy and is something to monitor in the upcoming months,” Mr. Jones remarked in a statement.
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Nevertheless, the sector is optimistic about a broader recovery throughout the summer, with manufacturers expressing confidence in the economy’s positive trajectory. They anticipate a modest uptick in output in the three months leading to September.
The survey revealed that stocks of finished goods, products ready for sale after completing manufacturing stages, were more than sufficient to meet demand, standing at +14 percent and generally aligning with the long-term average.
These findings come amidst a decrease in inflation to 2 percent recorded in May. However, the Bank of England projects a potential increase in inflation during the last two quarters of the year.
Manufacturers foresee selling price inflation accelerating to an above-average pace in the three months leading up to September, following a softening in the May survey.
Credible Plan
Looking ahead, Mr. Jones emphasized that the incoming government following the upcoming general election will face a challenging economic environment.
“They will need to present a credible plan for sustainable growth. The focus should be on implementing long-term solutions to address poor productivity and create an environment conducive to accelerating business investment,” he added.
The CBI suggested that policymakers prioritize the development of an innovative trade and investment strategy. Mr. Jones also highlighted the importance of providing increased support for firms to invest in automation and AI.
“Simultaneously, directing attention towards advancing tax, planning, and skills policies— the ‘big three enablers’— within the initial 100 days can offer firms a clear roadmap for growth,” he emphasized.
Regardless of political affiliation, a new government has the potential to stimulate necessary growth by prioritizing business investment and addressing ongoing labor and skills shortages, noted CBI Chief Executive Rain Newton-Smith.
One year from now, UK manufacturers anticipate increased production. A surge in business optimism was observed in May among 63 percent of private sector executives, as reported by the Chartered Institute of Procurement and Supply (CIPS) and S&P Global.
Manufacturing firms are hopeful of boosting export orders as the economy continues its recovery, according to the CIPS survey. However, concerns were raised by some companies regarding political and economic uncertainties both domestically and internationally.
This development follows global supply chain disruptions earlier in the year, including freight diversion due to the Red Sea crisis.
