23 Jan 2008
Manufacturers' more pessimistic expectations
three months ago did not materialise and the sector has proved
resilient in the face of continuing concerns over a wider
economic slowdown in the wake of the credit crunch, the latest
CBI Industrial Trends survey reveals.
The quarterly version
of the survey shows that firms' orders
growth has held up, with export orders in particular remaining
healthy. But rising food and energy costs show no sign of
abating and firms expect their domestic prices to go up at
the fastest rate for 13 years. Export prices are also expected
to rise faster than they have for over two years.
Demand has
continued to grow, with 28% of firms saying total new orders
increased in the three months to January and 17%
reporting a decrease. This balance of +11% exceeded expectations
and was broadly in line with the previous four surveys. Slower
growth is expected in the next three months (a balance of
+4%).
On the monthly measure, total order book
levels were healthy - a balance of +2% said they were above
normal in
January,
the same as in April 2007 and the highest figure in a quarterly
survey since April 1995 (+8%).
Demand this quarter was for
the most part driven by export orders, no doubt helped by
the weaker pound - though much
of the currency’s depreciation occurred after this
survey was conducted.
A balance of +10% of firms reported
a rise in overseas orders, compared with a broadly flat balance
for domestic orders
(-1%). Exports grew at the fastest rate since October 1995
(+11%). Concerns that political and economic conditions abroad
will limit export orders over the coming three months have
increased slightly since October and expectations are for
flat growth in the next three months.
Growth in manufacturing
output remained firm, with a balance of +8% broadly in line
with the positive expectations in
October. Similar rates of growth are now expected (a balance
of +9%).
Nevertheless, sentiment fell for the second
consecutive quarter, with a balance of 18% of firms less
optimistic about
the
business situation than they were three months ago.
In spite
of the drop in sentiment, investment intentions over the
next 12 months are broadly unchanged after October's
dip, and spending plans for product and processes are their
most positive since 1997.
Despite the ongoing credit squeeze,
manufacturing firms do not report that access to or cost
of external finance is
a factor likely to limit either output or investment expenditure.
Skilled
labour shortages are less likely to constrain output and
investment expenditure than in the last six months. Manufacturing
employment fell in the last three months (for a balance of
-14%), in line with the long-term average (-15%). A balance
of -19% expects to reduce staff numbers in the next three
months.
Based on the survey, the CBI estimates
13,000 jobs were lost in the sector in the last quarter of
2007 and that
24,000
will be lost in Q1 of 2008, bringing the total employed in
manufacturing to 2,873,000.
Average unit costs grew (for a
balance of +25%), continuing the pattern of rapid growth
in the last three years. Much
of this has been due to the long rise in oil and metal
prices, but more recently has been compounded by other raw
materials
such as foodstuffs.
As a result, firms' prices have
continued to go up, at a similar rate to the past year. Domestic
prices rose
for a balance of 13% and export prices for a balance of 5%,
the strongest rate of increase since July 2005 (+5%). Domestic
prices look set to continue going up, and at an expected
rate (a balance of +21%) not seen since January 1995 (+33%).
Ian
McCafferty, CBI chief economic adviser, said: "Manufacturers
share similar concerns to other sectors about the economy – a
fear that rising costs might become combined with slowing
demand.
"Thankfully, the expected wobble in demand
didn’t
materialise in the last three months and orders for British-made
goods
have held up, particularly from abroad. What we are seeing
is part of a necessary rebalancing of the economy, in the
face of slowing consumer spending.
"The dilemma the bank now
faces over interest rates is to weigh risks of a slowdown
with the real and present pressure
on prices in both factories and other areas of the economy.
Price pressures from oil and food costs will bring higher
inflation in the short-term and may push the inflation rate
further above target during 2008, making the Bank's decision
even more difficult."
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