Manufacturing confidence slips to 28 year low

The latest quarterly CBI Industrial Trends survey published today (21 October) reveals declining demand for manufactured goods which, coupled with a sharp fall in output, has resulted in the sharpest single quarter fall in manufacturing confidence for 28 years. In the last three months, 16 per cent of manufacturers reported a rise in new orders while 46 per cent said they had fallen. The resulting balance of -30% signalled the fastest quarterly fall in total new orders since January 1999. Much of this was driven by weak domestic demand. A balance of -38% of firms reported falling domestic orders, the sharpest fall since January 1992. But export orders, which in previous surveys had been supported by the depreciation of Sterling, also fell as the global economic slowdown suppressed demand. Firms’ perceptions of their total order book levels also deteriorated over the quarter while manufacturing output fell at the fastest rate in ten years. And manufacturers see no let-up in the coming quarter with output, domestic orders and export orders all expected to fall further. The survey reveals that more difficult lending conditions following the global credit squeeze are acting as a brake on manufacturers’ investment plans. The balances of respondents planning to reduce capital spending on buildings and machinery over the next twelve months are the highest since the early 1980s. Sixteen per cent of firms cited the availability of external finance as a constraint on investment, well above the four per cent recorded in July and the highest figure since the question was first asked in 1979. However, firms increasingly view uncertainty about future demand as the most important factor curtailing investment plans. The number of job losses during the quarter was not as steep as firms had predicted in the previous quarterly survey but more jobs are expected to go in the next three months. Based on the survey results, the CBI forecasts 23,000 manufacturing jobs will be lost in the third quarter, rising to 42,000 in the fourth quarter. The CBI’s chief economic adviser Ian McCafferty (pictured) said: “This survey was conducted during a period of exceptional economic turbulence, so it is unsurprising that confidence has taken such a hit. However, the sharp falls in orders and output show that the slowdown in the UK economy is now spreading to sectors previously resilient to the weakness in the banking and housing markets. “It is also of serious concern that constraints on capital now appear to be affecting manufacturers, in a way that had not been the case earlier. “We can but hope that the recapitalisation of banks and the cut in interest rates, which took place just as the survey closed, will prevent a further credit squeeze over the winter.”