UK manufacturers report lower output

Manufacturing output weakened in March, as Brexit uncertainty continued to weigh heavily on the sector.

According the CBI Industrial Trends Survey for March, 27% of manufacturers reported total order books above normal and 26% said they were below, giving a net balance of +1%. That was down on February’s +6% and below the consensus forecast of +5%, although it remains above the long-run average of -13%.

Volume of output over the past three months was +4%. That was in line with the long-run average of +4%, but was down on February’s +7% and the weakest rate of growth since May last year, when it was +3%.

Export order books strengthened to +8% from February’s +1%, however, ahead of the long-run average of -17%.

The CBI survey comes two weeks after a UK purchasing managers' index indicated manufacturers had benefitted from pre-Brexit stockpiling in February, as companies looked to prepare for potential Brexit-related disruptions, though new orders were almost stagnant and the PMI suggested the sector had endured the second-slowest rate in over two-years.

Anna Leach, CBI head of economic intelligence, said the manufacturing sector was “barely growing”.

She continued: “Brexit uncertainty is one of the biggest threats to growth in the UK manufacturing sector, both current and future, as firms prioritise stockpiling goods over investing in the future of their business.”

An extra question was included in this month’s survey, asking how Brexit was affecting activity. A quarter of the 358 manufacturers surveyed reported stockpiling, while others referenced depressed investment and difficulty obtaining export orders.

The survey also found that output expectation for the next three months had fallen to a five-month low.

Tom Crotty, chair of the CBI Manufacturing Council, added: “Manufacturers are in despair at the unacceptable failure of politicians to end the Brexit impasse.

“Every day that goes by without a resolution results in more businesses putting off investments and stockpiling good sin order to soften the blow from a potentially disastrous no deal Brexit scenario.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The CBI’s survey probably still is excessively optimistic in the state of the manufacturing sector, despite the drop in the total orders balance in March.

“The balance points to year-over-year growth in manufacturing output picking up to about 2% soon, from -1.1% in January. But manufacturers report whether orders are above or below normal levels, meaning that the survey tends to be slow to reflect downtowns that begin after extended periods of growth.”

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The March survey points to the manufacturing sector being hampered by a lacklustre domestic economy and heightened Brexit uncertainties. However, there was a pick-up in foreign orders despite a weakened global economic environment.”