UK manufacturing recovers after October slump - survey

The UK’s manufacturing sector enjoyed a surprise rebound in activity in November, following sharp slowdown in October.

According to the CBI monthly Industrial Trends Survey, a net 10% of companies said total order books had improved in November. In October, the reading was -6%, the sharpest fall for two years, and most economists were looking for a similar reading in November, even though November has traditionally been a strong month for the sector, with only been one drop in the CBI orders balance in the past 13 years.

Of the 381 manufacturers surveyed, 17% said export order books were above normal and 17% were below normal, giving a net balance of 0% - well above the long-run average of -17% and up on October’s reading of -4%.

The CBI said the strongest growth had been in food, drink and tobacco; chemicals; and motor vehicles and transport equipment.

The car industry has struggled this year, as the introduction of new emissions tests caused a bottleneck in production, but the CBI’s survey indicates the issue may now be resolving.

Rain Newton-Smith, the CBI’s chief economist, said the data was “encouraging”. But she warned: “The future prosperity of manufacturers depends on getting the Brexit deal right.

“We need frictionless trade for our world-beating manufactured goods and a transition period which draws us back from the cliff edge. Anything less than that and jobs and investment could suffer.” Manufacturing currently accounts for around 10% of the UK’s economic output.

Prime Minister Theresa May has secured a withdrawal deal with the European Union that includes a lengthy transition period, but it faces hostility in Parliament and could yet to win the backing of MPs.

The CBI said the net balance for output volume over the last three months was 18%, ahead of the historic average of 4% and up on October’s 13%. But manufacturers also said they expected output to grow at a slower rate in the coming quarter, with 29% predicting growth and 21% expecting a decline, giving a net balance of 8%.

While the CBI rebound dilutes some of the concerns over the manufacturing sector’s performance in the fourth quarter, Howard Archer, chief economic advisor to the EY ITEM Club, said it was notable that some balances are still significantly below the levels seen in recent months.

"This is particularly notable for output expectations for the next three months, as well as for output over the past three months and export orders."

Overall, Archer said conditions look challenging at home for manufacturers, while export are hampered by economic activity slowing in the Eurozone and global trade tensions causing concern for some. "There is heightened caution over investment and expenditure on capital goods amid significant uncertainties, particularly Brexit. Limited consumer purchasing power and fragile confidence is also a constraint on the demand for manufactured goods, particularly big ticket items."

He added that although the pound is still clearly above its 2017-lows its relative weakness may provide some help to UK manufacturing exporters.