Manufacturing output growth slows but remains strong

Credit: Dmitry Kalinovsky

Manufacturing order books weakened in the three months to March, but remained well above their long-run average, according to the latest monthly CBI Industrial Trends Survey.

According to the survey of 381 manufacturers, export order books remained unchanged and above the long-run average. Output continued to grow robustly in the three months to March, but at a slower pace than in the three months to February.

Output growth was broad-based, increasing in 14 out of 17 manufacturing sub-sectors.  Growth was predominantly driven by Motor Vehicle and Transport Equipment, Chemicals and Electronic Engineering. Respondents anticipate that output growth will slow further over the next three months, matching the pace seen in November and December 2017.

Expectations for output price inflation continue to weaken, but remain above the historical average. Meanwhile, stocks were considered to be above adequate levels, moving above the long-run average for the first time since September 2016.

Looking ahead, strong global demand and the lower pound will continue to underpin demand for the manufacturing sector. But we expect consumer-facing companies and retailers to continue to struggle while household incomes remain under pressure from higher inflation.

Anna Leach, CBI Head of Economic Intelligence, said: “Robust global growth and the low pound have gifted UK manufacturers a strong first quarter in 2018.  Although total order books and output growth slipped relative to February, demand and output growth remain well ahead of long-run averages.

“Confidence among manufacturers will have been given an additional boost by the agreement of a transition deal, giving them the confidence to continue investing and planning for growth. Other hurdles on the Brexit path need to be cleared in the same spirit – this includes a speedy agreement of a mutually beneficial trade deal for both the UK and the EU, with a customs union one of the options on the table.”

Tom Crotty, Group Director of Ineos and Chair of CBI Manufacturing Council, said“A buoyant global economy and the low pound continue to work their magic on demand for UK manufactured goods. But while the agreement of a transition deal on Monday is welcome, the sector is still in limbo. Swift progress is needed on a deal which preserves barrier-free access to the EU market, and allows manufacturers to access the people and skills that they need from the continent.”