UK's manufacturing sector ends a tough year on a brighter note - CBI

The UK’s manufacturing sector saw output improve as 2018 came to an end, as growth in exports helped overcome softer domestic demand.

The CBI Industrial Trends Survey for December found that 28% of manufacturers had reported total order books as above normal, and 20% below normal, giving a balance of +8%. That was down on November’s figure of +10% but ahead of both the long-run average of -13% and economists’ forecasts of around +6%.

Output expanded in 15 of the 17 sub-sectors, with the biggest growth reported by food, drink and tobacco; mechanical engineering; and chemicals.

Export order books are at their strongest since the start of the year, with 27% of firms reporting them above normal and 13% stating they were below normal. That gave a balance of +14%, comfortably ahead of the long-run average of -17% and the highest since January’s reading of +19%.

The output balance was +23%, well above the historic average of +4% and up on November’s +18%.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The survey points to the manufacturing sector ending a largely challenging 2018 on a reasonable note. The modest softening in overall orders in Decembers appears to have been very much due to weaker domestic demand. Encouragingly, foreign demand picked up appreciably in December.”

The CBI said that the manufacturing sector had benefited from “firm global economic growth and a low sterling exchange rate”.

But Anna Leach, head of economic intelligence, added a note of caution. “Uncertainty over Brexit still casts a long shadow over this sector and the rest of the economy. Politicians must finally stop the endless infighting and come together to secure a workable solution, or we’re in danger of edging closer to a no-deal Brexit.”

Tom Crotty, chair of the CBI’s Manufacturing Council, called for a deal that allowed for continued frictionless trade with the European Union. “Firms are under no illusion that a failure by government to secure a viable Brexit solution would bring further uncertainty in 2019,” he added.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Taken at face value, the CBI’s survey suggests that the manufacturing sector finished 2018 on a strong note.

“However, the survey has been a very poor guide to the official measure of manufacturing output, which fell by 1% year-over-year in October. The CBI asks manufacturers to report whether orders are above or below normal, not whether they have increased since the prior month. Accordingly, the survey is too slow to register turning points.”

The CBI surveys 346 firms across manufacturing.