Friday, July 3, 2020

Sharp drop for manufacturing activity

UK manufacturers reported the quickest falls in output volumes and total new orders since 2009 in the three months to April, while business optimism plunged at a record pace. That’s according to the latest CBI quarterly Industrial Trends Survey.

The survey of 330 manufacturing firms saw domestic orders drop at a similar pace to the last quarter, while the fall in export orders accelerated. At the same time both business and export sentiment plunged at a survey-record pace.

Manufacturers expect the quick fall in output in the quarter to April – the sharpest decline since the financial crisis – to precede a sharper contraction in the next three months, with firms reporting the weakest expectations on record. Additionally, manufacturers expect both new domestic and new export orders to fall at a much faster pace next quarter.

Investment spending plans for the next year sank to a survey-record low for buildings and plant & machinery, with record proportions of firms particularly concerned about demand uncertainty and internal finance availability.

Headcount in the three months to April fell at a similar pace to January, but manufacturers expect to reduce headcount at the fastest pace since 1980 over the next quarter. At the same time, manufacturers are expecting costs to increase sharply, with nearly half of businesses expecting output to be limited by shortages of materials or components – the highest proportion reporting that since 1975.

Additional questions added to the survey in relation to COVID-19 revealed that:

  • Around four out of five firms have seen a negative impact on their domestic output.
  • Just over three-quarters of manufacturers reported a negative impact on their international output.
  • Roughly half of manufacturers reported a partial shutdown/closure.
  • Just over half of manufacturers mentioned that they temporarily laid off staff, but only one in twenty reported permanent layoffs.
  • Around two-thirds of firms have faced cash flow difficulties.

Rain Newton-Smith, CBI Chief Economist, said: “Manufacturers have taken a sharp hit during the shutdown in response to COVID-19, with this survey revealing some record lows. Despite the already-quick fall in output and orders in the quarter to April, expectations point to a faster decline in the next three months. Given the uncertainty over how long the shutdown may have to last, it’s little surprise to see businesses putting investment plans on ice as they work hard to get through this intact.

“The Government and Bank of England support schemes are vital to ensuring that businesses are able to re-open when appropriate. And ensuring those schemes reach companies on the ground swiftly is essential.”

Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, said: “This month’s survey makes for bleak reading, but the fall in activity and sentiment is not surprising given the unprecedented circumstances that manufacturers and other businesses face.

“Behind the figures are manufacturing firms doing their very best to support the nation’s efforts to suppress the outbreak, with many of them playing a key role in the production of critical equipment needed to tackle COVID-19. Therefore, it is crucial that the government continues to work with and support manufacturers during these difficult times.”

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