Sharp decline in motor vehicle production puts brakes on manufacturing output

Alpesh Paleja, CBI Principal Economist
Manufacturing output slowed to a halt in the three months to June, marking the slowest growth since April 2016, according to the latest CBI Industrial Trends Survey.

Weaker growth was predominantly driven by the largest contraction in motor vehicle production since the financial crisis (March 2009), likely due to the bringing forward of planned seasonal plant closures to align with previous Brexit deadlines.

However, the picture for manufacturing output was somewhat better outside of the motor vehicles sector. Ten out of the other sixteen sub-sectors saw growth, particularly in the chemicals and food, drink and tobacco categories. Nonetheless, output is expected to remain broadly flat in the three months to July.

The survey of 308 manufacturers also revealed that total order books deteriorated further on the previous month, to their lowest since October 2016. Export orders improved slightly in the three months to June, moving back above the long-run average. Pricing pressures also remain muted, with only a slight uptick in output price inflation expected over the next three months.

Stock adequacy returned to its long-run average in June, after spiking in May to its highest since 2009. The fall in stock adequacy was mostly driven by the motor trades sector.

Alpesh Paleja, CBI Principal Economist, said: “The bringing forward of planned closures to car manufacturing plants had a real impact and led to manufacturing output grinding to a halt. While the picture elsewhere in the sector was more benign, total orders weakened once again revealing some underlying causes for concern.

“There’s clear evidence that Brexit uncertainty is really biting, with our surveys showing volatility in both stocks and output in recent months. Firms are desperate to see an end to the current impasse – that means securing a Brexit deal that can not only command the support of parliament and the EU, but prioritises the protection of jobs and the economy.”

Tom Crotty, Group Director of INEOS and Chair of CBI Manufacturing Council, said: “Manufacturers are proving highly resilient in the difficult circumstances they face, but these results are further evidence of how ongoing Brexit uncertainty is holding back growth in key industries.

“The first item in the new Prime Minister’s in-tray must be to quickly resolve the Brexit deadlock. We can then look forward to working with the new government to address long-term challenges and identify new opportunities to enhance productivity in the sector”.

Across the economy as a whole, stock building supported economic growth in early 2019. However, business surveys suggest that underlying conditions remained more subdued, as Brexit uncertainty and slower global growth bit further on activity – a theme which appears to have continued into Q2.