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Manufacturers' optimism at 40 year high

24 April 2014

Business optimism among manufacturers saw its sharpest improvement since 1973, according to the latest CBI quarterly Industrial Trends Survey.

The survey of 405 manufacturers for the latest CBI quarterly Industrial Trends Survey found that in the three months to April 2014, growth in total order books and domestic orders was the fastest since 1995.

Export orders grew strongly, while investment intentions for the year ahead remained particularly robust. Output growth was solid again for the second consecutive quarter, while numbers employed rose at the strongest rate since October 2011.

Firms are upbeat about the next quarter, with growth expectations for domestic orders and output also the highest since the 1970s. Optimism about export prospects for the year ahead also rose strongly.

Signs of a continued recovery in the manufacturing sector appear to be feeding through to investment plans over the next 12 months, with plans for capital expenditure on plant and machinery (relative to last year) the highest for 17 years. Investment plans for innovation and training and retraining also remain robust.

According to the minutes of the latest Monetary Policy Committee (MPC) meeting, the Bank of England has revised its growth forecast for the first quarter of 2014 from 0.9 percent to 1 percent. The MPC also said that with employment growth slowing in recent months, it was likely that productivity had started to rise after several years of stagnation, thereby providing the foundation for more sustained real income growth.

“Confidence is rapidly rising among British manufacturers, with a real sense of business optimism," says Katja Hall, CBI chief policy director. “Our industrial base is seizing a bigger role in the UK’s economic recovery, with output, orders and hiring all on the up.

"There are still bumps in the road ahead, with only a tepid recovery likely in the Eurozone, the pound creeping higher and a rapidly evolving situation in Ukraine," she adds. "However, expectations for growth in the coming three months are positive and manufacturers plan to significantly ramp up investment in the year ahead."

Key findings – three months to April 2014:
- 41 percent of businesses said they were more optimistic about the general business situation than three months ago and 8 percent less, giving a balance of +33 percent, the highest since April 1973 (+41 percent)
- 38 percent of businesses reported an increase in total orders and 17 percent a decrease, giving a balance of +21 percent, the highest since April 1995 (+27 percent)
- The balance for new domestic orders (+17 percent) was also the highest since April 1995 (+17 percent), while the balance for new export orders (+16 percent) also represented strong growth
- 32 percent of firms reported a rise in output volumes and 17 percent a decline, giving a balance of +15 percent, while growth in numbers employed remained robust (+18 percent)
- Domestic and export output prices were little changed this quarter (+4 percent and +1 percent respectively). Average unit costs rose (+13 percent), for the second quarter running.

Key findings – next quarter:
- 36 percent of manufacturers expect total new orders to increase and 10 percent expect them to fall, giving a balance of +26 percent, the highest since October 1996 (+27 percent)
- A balance of +26 percent expect new domestic orders to rise (34 percent expect an increase and 8 percent a fall), the highest since April 1977 (+29 percent) and +22 percent expect new export orders to go up (33 percent expecting an increase and 11 percent a fall)
- 41 percent of firms anticipate a rise in output volumes and 10 percent a fall, giving a rounded balance of +32 percent. 27 percent expect employment to increase and 11 percent expect it to decline, giving a balance of +16 percent
- A modest rise in domestic output prices is expected (+9 percent), alongside another rise in unit costs (balance of +10 percent)
- Manufacturers' investment intentions for the year ahead compared with the previous 12 months improved sharply for plant & machinery (to +16 percent from +4 percent). They also remained robust for product & process innovation (+27 percent) and training (+26 percent)
- The number of firms citing uncertainty about demand as a constraint on investment edged lower to 43 percent, the lowest since October 2010 (41 percent)
- The number of firms seeing political/economic conditions abroad as a constraint on export orders in the coming three months fell for a fourth consecutive quarter to 22 percent, the lowest since October 2011 (20 percent).

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