UK manufacturing sector stuck in decline, CBI industrial trends show

UK manufacturing sector activity remained stuck in the doldrums in March, according to the CBI Industrial Trends survey, with factory output falling at the fastest pace in more than six years.

A survey of total order books in March found a negative balance of -14%, with 34% of businesses revealing order books were below normal and 20% reporting they were above normal.

This balance compares to the -17% in February and -15% in January.

Expectations are that average selling prices were will fall 1% over the next three months, a slight firming from the 3% estimate found a month ago.

The CBI survey, which polled 471 manufacturers around the country, output volumes over the three months to March fell at the fastest pace since September 2009, with eight of the 18 manufacturing sub-sectors posting a decline in output.

Weakness in the food and drink sector was blamed for two-thirds of this decline relative to February, with the CBI saying "localised flooding and mild weather potentially having hit production".

Rain Newton-Smith, CBI director of economics, said it had been a mixed month for the sector but optimism was there for a rebound.

"Whilst total order and export books remained steady, a drop in output reflected some volatility in the food and drink sector. Reassuringly, manufacturers expect a swift turnaround in activity."

Manufacturers were found to be anticipating a particularly strong rise in output over the next quarter, with a rebound in food and drink leading to 39% of firms predicting growth and 16% a decline. The resulting balance of 23% is the highest level in thirteen months.

Export orders showed little sign of improvement, remaining flat at February’s -19%.

Despite some improvement, the bigger picture is that the total orders balance of -14% remains well below the sector's post-crisis average of around -7%, said economist Oliver Jones at Capital Economics, with the export number suggesting that it could be some time before the recent falls in sterling start to feed through into higher exports.

Though the forward-looking output expectations balance in March’s CBI survey was encouraging, he noted that "the measure has consistently overestimated the strength of the sector for the past two years, so we would be wary of drawing too much comfort from it, especially as other survey measures such as the Markit/CIPS new orders balance remain subdued".

"We expect the manufacturing recovery to remain slow in the near term, given disappointing global growth and the uncertainty surrounding the EU referendum. However, the recent depreciation of trade-weighted sterling and our expectations for a pick-up in global growth in 2016 should both slightly improve the sector’s prospects as the year progresses."