Manufacturing output volumes were broadly unchanged in the quarter to April, according to the CBI’s latest quarterly Industrial Trends Survey.
While a broad range of sub-sectors reported lower volumes in April, this was offset by higher output in the motor vehicles & transport equipment sector. Manufacturers expect output to fall marginally in the three months to July.
Domestic orders fell through the quarter, as did the volume of new export orders, albeit marginally. Looking ahead, manufacturers expect the total volume of new orders to decline in the three months to July as both domestic and export orders are anticipated to fall. Half of respondents cited political or economic conditions abroad as a factor likely to limit their export orders in the quarter to July, the highest proportion since April 2021.
Manufacturers reported increased cost pressures. Growth in average costs accelerated in the quarter to April, compared with January, while expectations for costs growth in the three months ahead remain firm. Domestic prices are expected to rise at an accelerated pace in the quarter to July, whereas export prices are expected to be unchanged.
Sentiment across the manufacturing sector deteriorated in April and investment intentions for the year ahead are weak. Manufacturers expect to reduce spending on buildings, plant & machinery, product & process innovation, and on training and retraining, which saw the weakest balance since 2020. Manufacturers cited uncertainty about demand, inadequate net returns and labour shortages as key factors constraining capital expenditure.
The outlook for employment remains poor. Manufacturing headcount fell in the quarter to April, at the fastest pace since October 2020, and manufacturers expect numbers to fall again in the quarter to July.
Ben Jones, lead economist, CBI, said: “The recent downturn in manufacturing output appears to have eased, but manufacturers still seem gloomy about their prospects amid rising costs, an expected decline in new orders and heighted uncertainty around global economic conditions.
“The combination of financial pressures, market instability and falling confidence is leading manufacturers to cut back employment and investment, with plans for spending on buildings, equipment, innovation and training all taking a hit.
“The wider geopolitical environment is becoming increasingly challenging for exporters, with export optimism falling sharply for a second successive quarter and export order volumes now hovering around post-pandemic lows.
“The government is right to make the case for global free trade, with the Chancellor in Washington this week at the IMF spring meeting reaffirming that commitment. The uncertainty around global economic conditions only increases the importance of getting it right in domestic economic policy.
“Firms are already feeling the cumulative burden of rises in NICs and the National Living Wage – and tariffs represent another headwind for the business sector. The government needs to view every decision through the lens of kickstarting growth and incentivising investment.”
