Hope of slowing input prices but growth outlook gloomy

The monthly CBI survey says the global economic slowdown has further depressed manufacturers’ order books and output growth expectations. Export orders have been particularly hit, despite the fall in Sterling against the Euro and the US Dollar since the spring. However, price inflation is likely to slow, with falling expectations of price rises - which should provide scope for the Bank of England to cut interest rates in the coming months. CBI chief economic adviser Ian McCafferty said manufacturers had been hit harder than expected by the economic slowdown with demand falling sharply, and they were not optimistic about the next three months, with output expectations having fallen further. He went on: “But there are further signs that the Bank of England should consider cutting rates soon. Inflationary pressure is starting to fall, with fewer manufacturers now expecting price rises over the next three months than in our previous recent surveys. We believe the Bank should have room to reduce rates by half a point in November, and this new survey reinforces our call for a cut.” The survey reveals that output expectations have fallen to a seven-year low. Over the next three months, 20% of manufacturers expect their volume of output to be up, but 36% expect it to be down, the most pessimistic outlook since December 2001. Current total order books have also been hit by the slowdown, and 19% of manufacturers say that their total order book is above normal, 44% say it is below normal, the worst figure for more that two and a half years. Export order books have been particularly affected, with 14% of manufacturers saying they are above normal, and 39% - more than for three years - saying the opposite. Expectations of price rises for the next three months are lower than in previous months. While 33% of firms expect prices to be higher over the next three months, 56% expect them to be the same, and 10% expect a fall – the most hopeful outlook since February.