Manufacturing slump eases in October - CBI
By Abigail Townsend
Date: Thursday 22 Oct 2020
(Sharecast News) - The decline in UK manufacturing slowed over the last three months, an industry survey showed on Thursday, as lockdown measures eased and demand picked up.
According to the latest quarterly Industrial Trends Survey from the Confederation of British Industry, output volumes in the three months to October fell at their slowest pace since March, at 8%. That compared to a 20% fall in September.
Output dropped in 10 out of the 17 sub-sectors, with the headline fall driven by the aerospace sector.
Total new orders were broadly flat at 3%, compared to July, when they plunged 60%. The balance for total order books rose to -34% compared to -48% in September, above the consensus for around -50%.
Rain Newton-Smith, CBI chief economist, cautioned: "Conditions remain tough in the manufacturing sector, with output and orders still down on the quarter, albeit to a lesser degrees. The government must stay on the front foot when it comes to providing support from the sector and wider economy.
"Additionally, signing a trade deal with the European Union would help create some clarity that firms so badly need during this fraught period."
Tom Crotty, chair of the CBI manufacturing council, said that while the survey depicted a "slightly rosier picture" for the sector, "there's still no escaping the fact first have endured another incredibly difficult quarter".
Business sentiment remained broadly unchanged quarter-on-quarter, at 0% compared to -1% in July.
Looking ahead, total new orders in the next quarter are expected to be flat, which the CBI said reflected steady growth in domestic orders and a slower fall in export orders.
A balance of -27% manufacturers reported that headcount had dropped over the past three months, compared to -47% in July - which was the weakest since April 2009. A positive balance of 3% expect to increase headcount this year.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The manufacturing recovery still has legs, but Brexit casts a shadow.
"The pick-up in total orders balance is a tentatively encouraging sign, especially since it is not seasonally-adjusted and it has fallen by an average of six points in the previous 42 Octobers. Manufacturers are asked to report if orders are above or below 'normal' levels, so its pick up appears to be consistent with something approaching a V-shaped recovery in output.
"Demand for UK produced goods from businesses in the EU will likely rise temporarily in November and December, due to the threat that tariffs will be imposed in the event of a no-deal Brexit. In the medium-term, however, Brexit is a losing game for UK manufacturers."
Howard Archer, chief economic advisor to the EY Item Club, said: "The survey was better-than-expected and showed a fair degree of resilience in the manufacturing sector. The orders balance pick up to be the best level since March, as it rose to -34% from -48% in September, and a low of -62% in May.
"Nevertheless, the balance was still markedly below the long term average of -14%."
The CBI surveyed 310 manufacturing firms between 25 September and 13 October.
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