Hard times

A return to weak export orders for UK manufacturers has combined with continued low domestic demand to make manufacturers’ outlook gloomy for a second month running, according to the CBI’s monthly Industrial Trends Survey.

The weakened export order books in December will come as a set back for manufacturers, who saw a marked improvement in exports in November. Total order books improved slightly on the previous two months although overall demand remained well below normal.

In the survey, a total of 37 per cent of firms reported lower than normal total orders and 15 per cent said they were above normal. This balance of minus 22 per cent is the same figure as in May and continues a trend of gently improving demand since a balance of minus 29 in August.

Export orders were reported as below normal by 36 per cent of firms, while 13 per cent said they were above normal – a balance of minus 23 per cent. This marks a return to the sorts of levels seen in September and October, which saw export order balances of minus 25 and minus 28 per cent respectively.

In the next three months, 24 per cent of firms expect an increase in output and 29 per cent expect a reduction, a rounded balance of minus four per cent. This negative output expectation may partly reflect the constraints that higher energy costs could put on production this winter or plans for a modest rundown in stocks following this year’s build-up.

A more positive note in the survey is that as many firms expect to raise prices as to cut them in the next three months. This is better than the deflationary price trends expected since May but worse than a year ago. Costs are still putting profit margins under pressure, although the fifteen per cent drop in oil prices since their late August peak should have helped.

Ian McCafferty, CBI Chief Economic Adviser said: “2005 has been an extremely tough year for UK manufacturers and there are few signs of optimism for the coming months. Weak consumer spending continues to have a negative impact on domestic orders and this month’s return to poorer overseas sales reflects the very strong global competition faced by UK exporters."

“A severe winter will only compound issues for manufacturers whose production could be constrained by higher gas prices.”

The monthly Industrial Trends survey was carried out between 22 November 2005 and 7 December 2005 and 737 manufacturers responded.