- The September CBI industrial trends survey was weaker than expected, indicating that the manufacturing sector was struggling for momentum. The CBI survey has recently been portraying a more subdued picture of the manufacturing sector than the purchasing managers ‘flash’ surveys, the latest of which will be released on Wednesday
- The orders balance in the CBI survey fell in September and was below normal levels. Output expectations for the next three months were in negative territory, albeit slightly less so than in August. Output over the past three months was reported to have fallen, albeit at a reduced rate
- Despite the September CBI industrial trends survey, the EY ITEM Club believes that GDP growth in the third quarter is likely to be at least 15% up quarter-on-quarter as the economy benefited from reduced lockdown restrictions and the release of pent-up demand
- However, it is increasingly evident that the fourth quarter will be more challenging for the UK economy
- Economic activity in the fourth quarter is expected to lose momentum given the likely rise in unemployment at the end of the furlough scheme in October and as the boost from pent-up demand wanes. Increased restrictions on activity due to rising COVID-19 cases are also now a heightened risk for the economy. Uncertainties over the future UK-EU relationship could also fuel business caution and weigh on investment
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for September suggests that the sector is struggling for momentum.
“The orders balance fell back in September after modest improvement over the previous three months. It dipped to -48% in September after rising modestly to a five-month high of -44% in August from -46% in July, -58% in June and -62% in May, which had been the lowest level since October 1981. The balance had previously fallen to May’s low from -56% in April and -29% in March. At -48% in September, the balance was substantially below the long-term average of -14%.
“The decline in total orders in September seems to have been primarily due to a softening in domestic demand as the export orders balance improved modestly, although it remained well below its normal levels.
“Foreign demand improved modestly for a third month running in September having been at a record low in June (the series started in April 1977). The export orders balance improved to -56% in September from -60% in August, -64% in July and -79% in June. However, it was still below the March level of -28%. At -56% in September, it was substantially below the long-term average of -18%.
“Manufacturing volumes were reported to have fallen at a reduced rate over the three months to September compared to the three months to August and a record fall over the three months to July (the series started in July 1975). The balance of -20% represents a rise in output in the three months to September compared to -46% in the three months to August and -59% in the three months to July. The balance had previously fallen to July’s record low from -57% in June, -54% in May, -21% in April and -8% in March.
“The CBI reported that output fell in 10 out of 17 sub-sectors, with the headline decline in output being led largely by the motor vehicles & transport equipment sub-sector.
“A balance of -6% of manufacturers expect a rise in output over the next three months, up modestly from -10% in August. A balance of -1% of manufacturers expect to raise prices over the next 3 months, up modestly from -5% in August. This still suggests that manufacturers feel a need to price competitively to gain business.
“The latest hard data from the ONS shows that industrial production rose 5.2% month-on-month in July, with manufacturing output climbing 6.3%. This followed respective monthly gains of 9.3% and 11.0% in June. The year-on-year decline in industrial production moderated to 7.8% in July from 12.5% in June and 20.0% in May, while it slowed to 9.4% from 14.6% and 23.1% in the manufacturing sector.”