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U.K. manufacturing output grew at its fastest rate in fifteen years in the three months to July, as demand continued to strengthen and firms rebuilt their stocks, latest quarterly industrial trends survey by the Confederation of British Industry revealed Tuesday.
Of the 439 manufacturers who responded to the survey, 38% said output rose during the last quarter, while 15% said it fell. The resulting rounded balance of 24% was the strongest since April 1995, when it was 26%. Moreover, it was a marked improvement on the previous quarter's flat performance. "With demand for U.K.-made goods at home and abroad having strengthened, manufacturing production really stepped up a gear during the past three months," CBI's Chief Economic Adviser Ian McCafferty said.
The business body said a strong rise in domestic orders helped to boost output. Of the surveyed, 29% of firms said the volume of domestic orders rose and 19% said they fell, giving a balance of 10%, the strongest since April 2004. Overseas demand was buoyant with 28% of firms reporting a rise in export order volumes, and 11% revealing a decline, giving a rounded balance of 18%. As a result, the volume of total new orders, which reflects combined domestic and overseas orders, rose. Moreover, a shift in the stock cycle also pushed manufacturing output in the quarter to July.
"Manufacturers have benefited so far in 2010 from healthier demand both at home and overseas, improved competitiveness in both domestic and foreign markets stemming from the weak pound, and lean stock levels," IHS Global Insight economist Howard Archer said. But, he doubts whether manufacturing will continue healthy growth over the later months of the year and beyond.
Manufacturers are less optimistic about the business conditions in the next three months. The CBI said manufacturing output growth is likely to ease, as growth in domestic and export orders is expected to moderate. The balance of manufacturers expecting an increase in output and those anticipating a decrease was at 6%. Moreover, the survey revealed that business optimism weakened, with the balance falling to 10% from 24% recorded in the previous survey.
"July's CBI industrial trends survey is a blow to hopes that a strong upturn in the external and industrial sectors will help to offset the impact of the coming fiscal squeeze," said Jonathan Loynes, an economist at Capital Economics.
While costs rose sharply last quarter, their rate of growth is expected to ease. A balance of 25% of firms reported average unit costs rising, the highest since October 2008. In the coming quarter, a balance of 12% expect average unit costs to rise and 5% anticipate a rise in domestic prices.
Moreover, access to credit and finance appears to be improving with the percentage of firms citing it as a constraint to output and export orders having fallen to pre-recession levels. Employment has stabilized, with the balance at minus 2%. Firms expect staff numbers to remain unchanged in the coming quarter.
Further, the survey revealed that capacity use is normalizing in the British manufacturing industry, with 88% of firms saying they have adequate capacity to meet demand, and a third planning to invest to increase capacity. However, overall investment intentions remain weak, with spending on buildings expected to fall in the year ahead, while firms report little change in expenditure plans for plant and machinery.
The latest CBI quarterly industrial trends survey has been reclassified and re-weighted to bring the data in line with the latest U.K. and European Commission official classification systems so as to make easier comparison with other economic indicators.
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