Manufacturing activity grew modestly in the quarter to April, while stocks rose at a record pace, according to the latest quarterly CBI Industrial Trends Survey.
The survey of 270 manufacturing firms showed that while output growth sped up slightly in the three months to April, it remained relatively modest overall. Manufacturers expect output volumes to be broadly flat in the next three months.
Total new order volumes grew slightly in the three months to April, driven by a marginal increase in domestic orders, while export orders were steady. Manufacturers expect total new orders to fall in the next three months, with both domestic and export orders set to decline.
The three months to April saw an unprecedented acceleration in the growth of stocks held by the manufacturing sector. Stocks of raw materials, work in progress, and finished goods all grew at their fastest (respective) paces on record. Looking ahead, though, manufacturers expect stocks to fall across the board in the next quarter.
While business optimism continued to fall in the three months to April, it did so at a slower pace than the previous quarter. Similarly, sentiment regarding export prospects for the year ahead also fell, but to a lesser extent than in the previous survey. However, the proportion of firms citing political/economic conditions abroad as a factor likely to limit export orders in the next three months was at its highest since January 1983.
Rain Newton-Smith, CBI Chief Economist, said:
“UK manufacturing activity is just about holding up, but the unprecedented pace of stockpiling suggests that Brexit contingency planning stayed at the forefront of manufacturers’ minds.
“It’s encouraging that securing a Brexit extension has removed the cliff edge of a no-deal for now. However, it does not give manufacturers the longer-term certainty that they desperately need to invest in their businesses. For the good of the UK manufacturing sector, politicians must use this time well and come back with a renewed effort to get a deal over the line.”
Tom Crotty, Group Director of INEOS and Chair of CBI Manufacturing Council, said:
“A Brexit cliff edge has been avoided for now, but manufacturers still face an unacceptable level of uncertainty, and the prospect of a damaging no deal remains very real.
“The political deadlock on Brexit has continued for far too long. Politicians must find a compromise on a deal that can pass through Parliament as a matter of urgency.”
Investment intentions for the year ahead remained poor but were less negative compared to recent quarters across all categories surveyed. Firms still expect to spend less on buildings and plant & machinery, but the survey balances were less negative than in January. Meanwhile, manufacturers expect to spend roughly the same amount on product & process innovation and training & retraining in the year ahead, following three quarters of negative investment intentions.
The survey saw a record high proportion of manufacturers (since October 1979) cite replacement as a reason for expected capital expenditure in the year ahead. However, the proportion of firms reporting labour shortages as a likely limitation to capital expenditure in the year ahead also rose to a new record high.
Across the economy as a whole, stockbuilding is likely to have supported economic growth in early 2019. However, business surveys suggest that underlying conditions remain more subdued, as Brexit uncertainty and slower global growth bite further on activity.