UK industrial trend improves more than expected - CBI survey says

UK manufacturing is bouncing back, the CBI industrial trends survey showed on Thursday as the headline total orders balance came in much higher than forecast.

June’s headline total orders balance rose to +16 from +9 in May, its highest reading since 1988 and well above the measure’s previous post-crisis high of +11.

This comes on the back of the latest official figures from the Office for National Statistics that showed manufacturing output edged up 0.2% month-on-month in April after falling in each of the first three months of 2017.

The survey of 464 manufacturing firms found improvement in 13 of the 17 sub-sectors, led by the food, drink & tobacco and chemicals sectors, helped by export orders rising to a 22-year high.

On the downside, the balance of businesses saying the volume of their output over the past three months was higher fell to +15% from the +28% in May.

Inflationary pressures remain high, with a balance of +23% firms expecting average selling prices still expected to rise, in line with the level seen in May, though not as high as February's peak of +32%.

“With cost pressures remaining elevated it’s no surprise to see that manufacturers continue to have high expectations for the prices they plan to charge," said Rain Newton-Smith, the CBI's chief economist.

Noting the clear dip in the output balance of over the past three months, Howard Archer, chief economic advisor to the EY ITEM Club, said the survey suggested that the manufacturing sector has had a strong second quarter and has considerable momentum going into the third quarter - but with some caveats.

Archer said there was concern that survey evidence for the manufacturing sector has tended to be markedly more upbeat than the official data from the ONS so far in 2017, with the official data suggesting the manufacturing sector is far from guaranteed to see even modest growth in the second quarter.

The sector outlook is mixed, he said: “On the positive side, the overall substantial weakening of the pound and improved global demand should buoy UK manufacturers competing in foreign markets. The weakened pound could also encourage some companies to switch to domestic sources for supplies, which may help manufacturers of intermediate products.

“However, increased prices for capital goods and big-ticket consumer durable goods, diminished consumer purchasing power and uncertainty over the economic and political outlook could hamper manufacturers."