Manufacturing sees orders fall and optimism ‘flatline’

The CBI said manufacturers face 'sizeable external headwinds'. Picture: PA

The CBI said manufacturers face 'sizeable external headwinds'. Picture: PA

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Manufacturing’s malaise has continued after the flat start to 2016, with latest orders falling and optimism on export prospects having “flatlined”, a new survey has shown.

Britain’s manufacturers also face “sizeable external headwinds”, says the latest quarterly industrial trends report from the CBI employers’ lobby group.

The survey of 472 manufacturers said that total new orders edged down in the three months to April, continuing the decline in the previous three months.

Underlining the pressures faced by the sector, the CBI said: “Average input costs rose at the fastest pace in two years, but firms found it difficult to pass on increased costs, with both domestic and export prices continuing to fall.”

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Rain Newton-Smith, the CBI’s director of economics, said: “Manufacturing has yet to pick-up after a flat start to the year, with falling orders providing little impetus for production.

“While expectations for the upcoming quarter are encouraging, manufacturers are still facing sizeable external headwinds. The falling exchange rate should give some support to manufacturers, and investment intentions are strong. With the expected pick-up in exports, it’s likely that firms will be looking to increase capacity.

“We need to continue to help manufacturers to export their products to markets across the globe. While businesses should take the lead, government also has a role to play through the advice provided by UK Trade and Investment (which supports UK exports and inward investment) and our embassies.”

Manufacturing, which accounts for about 12 per cent of the economy, has trailed the services sector and UK consumer spending in powering the economic recovery over the past few years, but has been helped by the marked overall weakening of sterling in recent months. The CBI survey said 21 per cent of businesses canvassed reported a rise in total orders in the latest quarter, and 25 per cent a decrease. That gave a negative balance of minus 4 per cent, unchanged from January.

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Export orders deteriorated with a negative balance of minus 7 per cent, down from minus 2 per cent in January. A total of 14 per cent of manufacturers said they were more optimistic about the general business situation than three months ago, and 19 per cent more pessimistic, giving a negative balance of minus 5 per cent.

This was virtually unchanged from the previous quarter’s optimism level, which came in at minus 4 per cent. More positively, chemicals and food and drink manufacturers said they had “robust” investment intentions in the coming quarter.

However, Howard Archer, chief UK economist at IHS Global Insight, said “the suspicion remains that the upside for manufacturing activity is likely to be limited until June’s EU referendum is out of the way”.

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