Manufacturers report weakening demand and expect output to fall, says CBI

25 November 2011

UK manufacturers reported a weakening in order books in November, with export orders in particular deteriorating significantly, the CBI reported on Thursday (24 November). As a result, firms expect a fall in production over the coming quarter, according to the CBI’s latest monthly Industrial Trends Survey.

Of the 446 manufacturers responding, 11% reported export order books to be above normal, while 42% said that they were below. The resulting survey balance (-31%) is the lowest since January 2010 (-33%), and marks the first time that it has fallen below its long-run average (-21%) since February 2010 (-23%).

Total order books also failed to see any improvement. 15% described total orders as above normal, and 34% said they were below. The resulting balance of -19% represents a significant worsening in total order positions in comparison with earlier this year.

Expectations for output growth remained negative for the second month running. While 20% of manufacturers believe output will rise in the next three months, 29% expect to cut back on production. The resulting rounded balance of -8% is little improved on the October survey (-11%), when the survey balance fell to its lowest since July 2009 (-14%).

Slackened demand and subdued output prospects have continued to dampen expected output price inflation. 18% of manufacturers predict that they will raise output prices over the coming quarter, and 16% expect to lower prices. The resulting balance of +2%, is markedly lower than the stronger expectations seen in the first half of 2011.

Ian McCafferty (pictured), CBI Chief Economic Adviser, said developments in the Eurozone, and their impact on prospects for the UK's major trading partners, are clearly hitting the UK manufacturing sector, and there's been a sharp decline in export order books this month. “In response to weaker demand, firms still expect to cut back on production," he said. "With heightened uncertainty over global prospects and business confidence falling sharply, it is very possible that factories will see production slowing further in the near term.”

Stock adequacy remained relatively elevated in November, despite having eased on the previous two months. A balance of +16% of firms reported stock levels to be more than adequate, which is marginally above the long-run average (+14%).