UK manufacturing orders remain solid in August - CBI

UK manufacturing orders have remained solid this month and companies expect activity to continue at a similar pace over the next few months, an industry survey revealed on Tuesday.

The total balance of companies reporting their total order books were above normal in August was +7 above those reporting theirs was smaller than normal, the monthly CBI Industrial Trends Survey found.

This order balance was down from +11 in July and very marginally below the forecast +8, but remained in positive territory as it has for 11 of the past 12 months, while export orders remained at +9 for the third month. August's orders were consistent with year-over-year growth in the official measure of manufacturing output of about 4%, economists said.

In terms of volume of output over the past three months, the balance of manufacturers seeing an increase was +21, down from +29 and +27 in the past two months but above the three months preceding that.

Output growth saw 13 out of 17 sub-sectors reporting growth, driven by the food, drink and tobacco sector. The drags on growth came mainly from the furniture and electrical goods sectors, which both saw output fall.

Looking forward, manufacturers expect output growth to continue at a similar pace, with the balance for output volumes for the next three month rose to +20 from +14 and +18 in the previous months.

While the CBI expects UK manufacturers to continue benefitting from overseas demand due to the weak sterling exchange rate and still-solid global trade, overall economic growth is expected to remain "subdued", reflecting weak household income growth and with companies holding back on investment due to uncertainty about Brexit.

“Manufacturing growth remains strong, supported by the lower level of sterling and strong global economy," said Anna Leach, the CBI's head of economic intelligence. "But risks to that growth remain high in light of international trade tensions and the uncertainty caused by Brexit."

With a fresh round of Brexit negotiations beginning on Tuesday, Leach said manufacturers will be keen to see "urgent progress" on the withdrawal agreement.

“Make no mistake, a ‘no deal’ scenario would be immensely damaging not just for UK manufacturers, but also the rest of the EU. So both sets of negotiators need to demonstrate flexibility and compromise to protect trade flows worth 600 billion euros each year, particularly against the backdrop of increasing protectionist rhetoric.”

Economist Sam Tombs at Pantheon Macroeconomics said the survey continues to paint an upbeat picture of conditions in the manufacturing sector, which was consistent with manufacturing output of about 4%.

"We doubt, however, that output is growing that strongly, given that world trade is slowing and the alternative and more reliable Markit/CIPS survey has pointed to growth of 1.0-to-1.5% lately.

"Meanwhile, the outlook for the manufacturing sector remains overshadowed by Brexit, which already has prompted firms to shelve investment even though capacity constraints are biting and to relocate some production to mainland Europe. We’d be surprised, therefore, if the manufacturing sector has much momentum at the end of this year."