UK manufacturing falters as Covid-19 hits demand

Manufacturing output fell in early March, as the coronavirus outbreak started to take its toll on the sector, a widely-watched survey revealed on Tuesday.

The CBI Industrial Trends Survey for March saw both total and export order books worsen considerably month-on-month. The balance for total orders was -29%, compared to -18% in February, although it was above consensus for -35%. The balance for export orders was -28%, compared to -17% in February and below the long-run average of -17%.

Manufacturing output volumes fell in the three months to March, though it was at a roughly similar pace to February. However, manufacturers predicted output volumes would contract at a faster pace in the next three months, with expectations now at their weakest level since the financial crisis.

Anna Leach, CBI deputy chief economist, said: “The manufacturing sector is facing unprecedented challenges due to Covid-19, such as widespread disruption to supply chains and weakening demand due to domestic containment measures.”

However, economists argued that the timing and nature of the survey meant conditions on the ground could in fact be even worse. The CBI surveyed 288 firms between 25 February and 13 March.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The CBI’s survey almost certainly is understating the damage to the industrial sector from the Covid-19 outbreak. Producers are asked simply to state whether orders are above or below‘normal levels, but they do not have to report the size of any decline in output.

“The survey also was undertaken in the first half of March, before school closures and other emergency measures which will have prevented workers from attending factories and shops from stocking goods.

“As a result, we would caution against taking comfort from the relatively small deterioration in the CBI’s survey.”

Of the firms surveyed, those operating in nine out of the 17 sub-sectors - including chemicals, and food, drink and tobacco - reported output volumes had expanded during the period. That was offset, however, by a sharp drop in output in the motor vehicles and transport equipment sub-sector.