UK manufacturing makes ‘positive move in the right direction’

The CBI survey also revealed that the weakness of sterling is helping export competitiveness, although stocks are still being run down and difficult access to finance is constraining output and investment. Responding to the survey David Raistrick (pictured), UK manufacturing leader at Deloitte, said that while the precise timing around a manufacturing recovery remained unclear, the sector had stabilised and was likely to continue improving, albeit slowly. "Major destocking has already taken place in the first half of the year indicating that the worst may be over, and while order books remain below where they were historically they appear to have levelled out," he said. "In addition to benchmarking manufacturing output and the position of order books against what may have seemed normal two or three years ago, it is interesting to also compare figures over the past 18 months in order to get a more accurate picture of how manufacturing is emerging from the recession. This shows a positive move in the right direction. "There are many factors at play at the moment including weak demand, lack of available credit and the low value of sterling; which while helpful for certain manufacturers, is making business difficult for many importers. However, the key issue remains one of demand, both within the UK and globally. Hopefully as confidence returns, so too should demand which will should provide the much needed boost to manufacturers' order books." The survey showed the volume of manufacturing output continuing to fall in the three months to October, with 34% of firms saying it fell, and 26% saying it rose, giving a balance of -8%. This marks a much slower rate of decline than in July's survey (-31%). Asked about the next three months, a balance of +4% of firms expected growth, which is the highest since January 2008 (+9%). Domestic demand continued to slow in the three months to October, but marginal growth is expected in the three months ahead. Helped by a weakened sterling, the contraction in demand for exports was less than expected and firms expect export orders to grow over the coming three months. Sentiment about export prospects for the year ahead is the strongest since July 1995. CBI chief economic adviser Ian McCafferty said: "Having endured a brutal recession, manufacturers appear to be turning the corner, with optimism up and mild growth in output and demand expected over the next three months. Firms finally seem to be benefiting from a weakened pound, as global markets recover, helping to lift demand for UK exports. "However, the recovery from the downturn will be protracted and weak – investment will remain constrained and unemployment will continue rising. The tight flow of credit to many manufacturers remains a worry, and firms which are unable to get funding to meet orders could see their hopes of recovery stall." Firms are planning to spend more on innovation in the next twelve months, while expenditure on staff training and plant & machinery will be virtually unchanged from the levels of the past year. However, over three quarters of firms reported that they have spare capacity, and this is likely to constrain investment levels going forwards. Manufacturers are also increasingly worried about the cost and availability of finance. 14% said an inability to raise external finance was limiting capital investment, which marks an increase from 8% in July. Firms continued to destock, and the stock levels of finished goods fell at a record rate for the second successive survey. Further but more modest stock declines are anticipated in the coming three months, although stock levels have now moved to a more neutral position, with a balance of only 10% saying they are more than adequate. Employment in the sector, although falling quite heavily, was an improvement on July and is forecast to ease further in the coming three months.