Manufacturing orders rise despite fall in exports, CBI finds

Orders for manufactured products in the UK improved more than expected in November, however exports orders fell as the effect of the low pound fails to stimulate consistent, widespread overseas demand.

The Confederation of British Industry (CBI)’s monthly survey of manufacturers showed the balance of total orders improved to -3 in November from -17 in October, well above the long run average of -20.

Of the manufacturers surveyed 23% said their total orders were above normal and 26% said they were below normal, leading to a balance that was better that the consensus forecast of -8%.

Output also rose at a slower pace over the past three months with the volume output balance at 4%.

The survey of 430 manufacturers also showed that the export order book balance was -11%, worse than the previous month's figure of -6% but still above the average of -19%, which indicated domestic demand was driving manufacturing growth.

Although sterling’s sharp drop has not fed through to a consistent export surge, the input effect of higher costs means manufacturers are planning to increase average selling prices at the fastest pace since January 2015 over the next three months, three quarters of which comes from food and drink sector.

Average selling prices are expected to rise to 19% at their fastest pace since January 2014.

Expectations for production over the coming quarter have however reached their highest level since February 2015 at 24% as 38% predicted growth versus the 15% who predict a decline.

In terms of present stocks of finished foods, 12% of firms said their stock was adequate whereas 10% said they weren't giving a balance of 3%, the lowest since July 2015.

“It’s good to see manufacturers’ overall order books at healthy levels, and the outlook for output growth remaining robust as we head into Christmas,” said CBI chief economist Rain Newton-Smith.

However, the survey's results are not seasonally adjusted and economists pointed out that this means they can show pronounced swings at certain times of the year.

Economist Sam Tombs at Pantheon Macroeconomics said the sharp improvement in the CBI’s total orders balance should not be mistaken for an improving trend.

"The orders balance nearly always recovers in November after plunging in October; its has been below its 12-month rolling average in 35 of the last 38 Octobers. At -3 in November, the orders balance is immaterially different to the -4 and -5 readings seen between July and September. On past form, the balance is consistent with year-over-year growth in manufacturing output of about 1%, nothing to write home about," Tombs said.

Paul Hollingsworth at Capital Economics said the manufacturing sector was "not out of the woods yet" but he remained optimistic about the future.

"While it is still benefitting from a competiveness boost arising from the lower pound, there is still a lot of uncertainty about future trading relationships. And the economy could take another hit if uncertainty builds, or when the pick-up in inflation really gets going and eats into consumers’ real spending power. However, we remain optimistic that the manufacturing sector should fare better in 2017 than it has in 2016."