Manufacturing confidence falls: CBI

However, while the outlook for the sector is fairly downbeat, firm export orders across the majority of regions has helped to limit the slowdown this quarter. Lai Wah Co, CBI Head of Economic Analysis, said: “Manufacturing confidence has tumbled over the past quarter. The climb in oil and other raw material prices over recent months has driven costs up significantly. Although firms are having some success in passing these costs on, profit margins are under pressure.” Peter Gutmann of Experian said: “Exports are helping to limit the slowdown in the manufacturing sector, boosted particularly by sterling’s weakness against the euro. However, the near-term outlook for manufacturing still looks tough as the economy enters a precarious phase.” The volume of new orders received in the past three months was broadly unchanged at the national level, for the second consecutive quarter. Seven regions reported falls in total orders, led by the West Midlands, which suffered its largest fall since 1999, followed by the East Midlands. However, orders grew strongly in Northern Ireland, for the second survey in succession, while the North West reported a modest increase. While the majority of regions reported falls in total orders, the opposite was true for export orders. Seven out of eleven regions saw an increase in overseas demand this quarter. Yorkshire & the Humber led the way reporting a firm rise in export orders, as it has done for the last four years, followed by Northern Ireland and Wales. Only two regions – the West Midlands and North East – saw a marked decline in export orders. However, looking ahead to the coming quarter, expectations for total orders are negative across the regions of Great Britain. Two of them, the West Midlands and Scotland, are extremely downbeat, with expectations their most pessimistic since 1998 and 2001 respectively. Three regions - the East Midlands, the North East and Yorkshire & the Humber – saw expectations turn firmly negative after upbeat expectations for most of the past two years. Total manufacturing output was unchanged in the past three months at the national level. But this stable picture masks wide divergences across the regions. Four regions led by the East Midlands reported growth in output. But five regions reported a contraction, and the decline was pronounced in the West Midlands and the South East & London. But output is set to decline across the majority of regions over the three months to October, and like with total orders, the West Midlands and Scotland are among the weakest regions. Three regions led by Northern Ireland expect output to increase. Although manufacturing employment at the UK level contracted in the past quarter, it did so at the slowest pace since 2004, helped by rising employment in Wales and the East Midlands. Employment declined at the fastest pace in the West Midlands and the South West. However, the outlook for jobs in the sector is much weaker reflecting the more difficult economic backdrop that is expected. The West Midlands, Yorkshire & the Humber, Northern Ireland and the South East & London all anticipate significant job losses in the months ahead. The East Midlands is the only region expecting an increase in headcount. Average unit costs surged in the past three months as oil prices moved above $140/bl and other raw material costs came under further upward pressure. The rise in unit costs was the sharpest at the UK level since the survey began in 1988 and in most regions – notably Yorkshire & the Humber, the North West and Scotland – the increase was sharper than in any previous quarter. Furthermore, all regions expect to see further significant rises in costs in the coming months - particularly those in the North of the country. With cost pressures intensifying, firms have attempted to offset some of the damage to profit margins by raising prices. Domestic and export prices increased in every region over the past three months and there are widespread expectations that this will continue. Best placed in terms of prices are the West Midlands, Yorkshire & the Humber and the North East, where both domestic and export prices are set to increase strongly next quarter. The anticipated weakening in activity across most of the regions, combined with the expectation of further rapid cost rises, have contributed to a sharp fall in business confidence - in many cases the steepest since 2001. The declines were most pronounced in the North West, the West Midlands and Yorkshire & the Humber. Northern Ireland is the least pessimistic region, helped by firmly positive expectations for both total and export orders - the healthiest of all the regions. Investment intentions for plant & machinery at the UK level are more subdued than at any time since 2002. Only one region - Wales - expects to increase capital expenditure on plant & machinery in the year ahead. The North East and the East Midlands plan to maintain their investment spending. However, most regions plan much reduced expenditure in the coming 12 months. The most significant investment cutbacks are expected in the West Midlands, Scotland, the South West and the South East & London.