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'External headwinds' cause concern for manufacturers

Published 25/04/2016

Export orders are still a concern for UK manufacturers
Export orders are still a concern for UK manufacturers

UK factory output stabilised over the three months to April, although export orders remain a cause for concern for manufacturing firms.

The latest CBI Industrial Trends Survey showed the balance of companies that increased total orders was minus four, the same level as January.

However, export orders fell to minus seven from minus two over the same period, while domestic orders remained broadly flat.

The report said manufacturers faced "sizeable external headwinds", such as a slowing global economy and uncertainty over the UK's EU referendum vote on June 23.

This report follows earlier data from the closely-watched Markit/CIPS manufacturing purchasing managers' index this month, which said UK factory output was stuck in the ''doldrums'' at close to three-year lows.

A bright spot in the CBI survey showed that firms expect demand to lift over the coming quarter, underpinned by a weakening pound in recent months that is expected to boost export orders.

But Rain Newton-Smith, director of economics at the CBI, said: "Manufacturing has yet to pick up after a flat start to the year, with falling orders providing little impetus for production. "While expectations for the upcoming quarter are encouraging, manufacturers are still facing sizeable external headwinds.

"The falling exchange rate should give some support to manufacturers, and investment intentions are strong.

"With the expected pick up in exports, it's likely that firms will be looking to increase capacity."

However, firms added that their costs rose over the last quarter at their highest rate since April 2014, but they found it hard to pass on these costs as prices continue to fall.

IHS chief UK and European economist Howard Archer said the CBI report was "somewhat mixed".

Mr Archer noted the expectation among firms that both domestic and export orders are expected to pick up over the coming three months.

Economists argue that an improvement in foreign orders is key to sustaining the UK's economic recovery, rather than relying on domestic consumer spending.

But Mr Archer said: "Nevertheless, the suspicion remains that the upside for manufacturing activity is likely to be limited until June's EU referendum is out of the way, given the heightened uncertainties."

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