Press release

23 Jul 2020 London, GB

Manufacturing sector sees some pick-up, but limited investment and employment remain concerns for longer-term outlook – EY ITEM Club comments

The July CBI industrial trends survey shows overall improvement, indicating that the manufacturing sector is benefitting from the progressive easing of lockdown restrictions. There was particular pick-up in output expectations among manufacturers, moving the sector into positive territory. However, the orders balance was still relatively weak despite rising to a four-month high.

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Related topics Growth
  • Output over the past three months was reported to have fallen at a record rate
  • The simultaneously released quarterly CBI survey showed a substantial pick-up in manufacturers’ confidence from April’s record low, although it was still far from robust. This translated into still-negative investment plans overall, although there was improvement from April’s record lows
  • Employment was reduced at a record rate over the previous three months. A balance of 38% of manufacturers expect to reduce employment over the next three months. Results may prompt the Chancellor to think about further steps to support the labour market in the Autumn Budget, following the measures announced in the Summer Statement
  • The July CBI survey does little to dilute concerns about the longer-term strength of the UK recovery, while maintaining hope that the economy will return to clear growth in the third quarter

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“The CBI industrial trends survey for July showed overall improvement – indicating that the manufacturing sector is benefitting from the progressive easing of lockdown restrictions.

“The orders balance rose to a four-month high of -46% in July from -58% in June and -62% in May, which had been the lowest level since October 1981. The balance had previously weakened to May’s low from -56% in April and -29% in March. Nevertheless, at -46% in July, the balance was still much below the long-term average of -14%.

“Domestic orders showed limited improvement in July but were still weak.

“Foreign demand improved modestly in July having been at a record low in June (the series started in April 1977). Specifically, the export orders balance improved to -64% in July after deteriorating to -79% in June from -55% in May, -49% in April and -28% in March. At -64% in July, it was substantially below the long-term average of -17%.

“Manufacturing volumes were reported to have fallen at a record rate over the three months to July (the series started in July 1975). A balance of -59% reported a rise in the three months to July, this was down from -57% in June, -54% in May, -21% in April and -8% in March.

“The CBI reported that output volumes fell in 14 out of 17 sub-sectors. The headline fall in output volumes was led by the motor vehicles & transport, food, drink & tobacco, and mechanical engineering sub-sectors.

“The most improvement in the July survey was seen in output expectations which picked up to be clearly back in expansion territory. A balance of +15% of manufacturers expect a rise in output over the next three months, compared to -30% in June, -49% in May and -67% in April. The balances had been -20% in March and +8% in February.

“A balance of +4% of manufacturers expect to raise prices over the next three months, up from -10% in June, suggesting that manufacturers were modestly more confident about being able to rise prices.”

CBI’s quarterly survey

Howard Archer continues: “The simultaneously released CBI quarterly survey showed that confidence among manufacturers picked up substantially from the record low seen in April, although it was still hardly robust. The business optimism index improved to -1% in July after falling to -83% in April from +23% in January (the highest since April 2014).

“Investment intentions came off their April record lows while largely remaining in negative territory. The CBI reported that “manufacturers expect investment in buildings, plant & machinery, and training & retraining to decline in the next year, but to a lesser extent than last quarter. Capital expenditure in product & process innovation is expected to remain broadly flat. The share of firms citing uncertainty about demand as a factor to limit investment in the next year (76%) reached a new survey record high, surpassing last quarter’s record”.”

Howard Archer adds: “A balance of -47% of manufacturers reported that headcount dropped over the past three months, which was the weakest balance since April 2009 and down from a balance of -14% in the April survey. A large balance of -38% of manufacturers expect to reduce headcount over the next three months. This may prompt the Chancellor to think about further steps to support the labour market in the Autumn Budget following the measures announced in the Summer Statement.”