A negative outlook

The

's Industrial Trends Survey has revealed a rapid deterioration in trading in Britain’s manufacturing sector coupled with a sharp drop in demand for products.

Demand is said to have dropped during the last three months, with 56 per cent of companies reporting a fall in the volume of new orders compared with the previous quarter, and just 14 per cent reporting a rise, giving a balance of -43.

This balance, derived from the difference between the percentage of manufacturers reporting an increase and those reporting a decrease, is the lowest since July 1991.

The rate at which demand fell in the last quarter marks an ongoing downward trend from previous quarters.

In October, the balance for volume of new orders was -30, and in July it was -3.

Ian McCafferty, chief economic adviser at the CBI, said: ‘The survey shows that manufacturing in Britain, as elsewhere, is being hit hard by the economic downturn.

'Demand for goods in the manufacturing sector has plummeted dramatically in the last three months.

‘Sentiment and the outlook for the next three months are also very negative.

'Most firms expect conditions to get even worse, with further falls in orders expected, leading to more job cuts.

'Companies unsurprisingly plan to cut back investment sharply over the next year.’

Sentiment was already weak in the sector, but the survey shows that 70 per cent of companies are less optimistic than three months ago, while six per cent are more positive, giving a negative balance of -64, the lowest since July 1980.

Similarly, fall in demand over the last quarter has had a series of negative consequences for the manufacturing sector.

Employment fell, with 45 per cent of companies saying that they employed fewer people than in the previous three months, while seven per cent said they employed more, giving a balance of -38. This compares with a balance of -15 in the previous quarter.

Furthermore, 70 per cent of companies said they were working below capacity, up from 62 per cent in October.

Firms also have more stocks of unsold goods than is deemed adequate to meet demand, with a balance of +27 reporting this.

Export orders fell despite the fall in sterling against other leading currencies during the last quarter.

38 per cent of firms reported a fall in export orders, compared with 14 reporting a rise, to give a balance of -25.

Manufacturers expect export orders to be even lower in the current quarter, with a balance of -27 expecting them to be down on last quarter.

Prices in the sector have been cut for the first time in three years. 24 per cent of firms reported lower domestic prices in the last quarter compared with the previous quarter, compared with 16 per cent reporting a rise, to give a balance of -8.

Looking forward to the next three months, firms forecast even weaker demand, with 62 per cent saying the volume of new orders would be lower than last quarter, while eight per cent said they would be higher, giving a balance of -54.

Firms also expect output to fall more sharply over the next three months.

50 per cent of companies said they expected it to be lower in this quarter than in the previous quarter, compared with seven per cent expecting a rise, giving a balance of -43, the lowest since records began in 1975.

Based on the survey findings, the CBI forecast that official manufacturing output will fall by 4.5 per cent in the first quarter of 2009.

The survey was conducted between 11 December 2008 and 7 January 2009. 527 manufacturing firms replied.