UK manufacturing growth slows in October - CBI

Growth in UK manufacturing activity unexpectedly softened in the three months to October, but remains “historically robust”, according to the latest survey from the Confederation of British Industry.

The CBI’s factory order book balance fell to -2 from +7 in September, missing expectations for a jump to +9 and marking its lowest level since November.

The softening was driven by a sharp slowdown in activity in the food, drink and tobacco sector, in particular, but was also relatively broad-based, with 14 out of 17 sub-sectors registering a deterioration in output compared to the previous quarter. Nevertheless, growth in October remained far above the long-run average.

The survey also found that optimism about business conditions fell for the first time in a year, to -11 from +5. Meanwhile, export order growth also slowed, while output expectations fell to +19 from +28.

The CBI’s chief economist, Rain Newton-Smith, said: “Growth in output and orders are still above historical norms, and it’s encouraging that plans for spending on innovation and training are holding their own. But we’ve seen a general softening in manufacturing activity over the past three months, with the outlook for investment becoming more subdued.

"To boost investment growth, Government should use the Budget to provide a fillip for factories through business rate reforms, including exempting new plant and machinery from rates altogether, and switching to the more recognised CPI inflation measure rather RPI when calculating upratings.”

Pantheon Macroeconomics economist Samuel Tombs said demand likely hasn’t deteriorated as sharply as the survey suggests.

“The total orders balance is comprised of manufacturers reporting whether orders are above or below ‘normal’. The balance is not seasonally adjusted, and it has fallen- by six points on average - in all but three Octobers during the last 40 years. Even so, our seasonally adjusted version of the CBI’s orders balance fell to +4 in October - its lowest level since December - from +7 in September.

“Manufacturers also were their least optimistic about the overall outlook since just after the referendum. And while profit margins are high and the proportion of manufacturers reporting that they are working below capacity fell to its lowest level since Q1 1998, the balance of manufacturers planning to increase investment fell to -7 in Q4, from +5 in Q3. Accordingly, uncertainty over post-Brexit trade links still is preventing the economy from rebalancing toward export-intensive sectors.”