Sentiment among UK manufacturers has deteriorated sharply, with optimism about both the business situation and export prospects falling at their fastest rates since the onset of the Covid-19 pandemic, according to the latest quarterly
CBI Industrial Trends Survey. Both output and orders declined, as competitiveness in UK markets deteriorated at a record pace.
Manufacturing output fell in the three months to April, and at a faster pace than in the three months to March. The decline was broad-based, but driven by the food, drink & tobacco, chemicals, metal products and mechanical engineering sub-sectors. Firms expect output to fall again in the three months to July.
Orders or sales remain the most cited constraint on output over the next three months, with the share of firms citing this broadly in line with the long-run average, while the share citing issues with materials or components jumped to its highest since July 2023. The volume of total new orders fell in April, reflecting declines in both domestic and export orders. Manufacturers expect the decline in new orders to accelerate, with expectations for the next three months close to the weakest since April 2020.
Cost pressures remain elevated. Growth in average costs per unit of output accelerated in the three months to April, compared with January, and unit costs are expected to rise at the fastest pace for over three years in the coming quarter. Both domestic and export selling prices rose, after being broadly stable in the quarter to January. Selling price inflation is expected to pick up further in the coming quarter, but less quickly than costs inflation, implying an intensifying squeeze on profitability.
Against this backdrop, manufacturers’ investment intentions remain weak. Firms plan to cut spending on buildings, plant & machinery, training (their weakest since April 2020) and innovation over the year ahead, held back by uncertainty about demand and inadequate net returns. Employment declined at the fastest pace since October 2020 over the past quarter, with deeper cuts to headcount expected over the next three months.
Ben Jones, the CBI’s senior lead economist, said: “Warning signs are flashing in this survey. Sentiment among UK manufacturers is deteriorating at a speed not seen since the pandemic. It is clear that the war in the Middle East is contributing to rising uncertainty, with supply chains beginning to see some renewed strain and cost pressures intensifying.
“The UK’s high industrial energy costs were a concern even before the conflict, leaving the manufacturing sector vulnerable to the crisis. As the squeeze on competitiveness becomes more pronounced, output and orders are weakening, spare capacity is rising and manufacturers are scaling back hiring and investment plans.
“The recent announcement to boost clean energy and decouple gas from electricity prices is a welcome step, highlighting the need for a consistent and coordinated approach to energy policy to strengthen industrial competitiveness. The Government should now work with business to explore how to remove non-energy ‘policy’ costs from electricity bills, support industrial energy efficiency, and advance renewable infrastructure. Energy security is economic security; by securing the right foundations, we enable manufacturers to invest, compete and grow.”