UK manufacturing sector weakens more than expected in October, CBI reveals

Factory output declined for the first time in two years in the quarter to the end of October, but firms expected to see an improvement over the following three months, one of the most widely-followed sector surveys revealed.

The Confederation of British Industry’s total orders index – which measures the difference between the number of companies expecting a decrease or an increase – fell to -8%, its lowest since October 2012.

That was down from the -7% seen in September, a level which economists expected to be maintained.

Investment for intangibles set to fall

Rain Newton-Smith, CBI Director of Economics, said: “While on balance firms expect orders to stabilise next quarter, it’s disappointing that firms are having to scale back their investment in innovation.”

Investment intentions for intangibles, such as training and product and process innovation, plumbed their lowest readings since July 2011 and July 2009, respectively.

Earlier the same day the FT reported ministers were considering proposals for loans to replace research grants to industry.

The proposal would affect some or all of the £600m annual innovation budget, the newspaper reported.

Gauges for both domestic and export orders registered declines in October, CBI said.

Sector set to struggle but economy will hold up

Scott Bowman, UK economist at Capital Economics, pointed out the falls in the forward-looking output expectations gauge, “which suggested the sector was set to continue struggling”.

Nonetheless, Bowman added; “while we are fairly negative about the manufacturing sector’s near-term prospects, a strong services sector should ensure that the overall economic recovery maintains a decent pace.

“As such, we believe that any slowdown in GDP growth in Q3 will prove temporary and the recovery should get back on track soon.”