- The October CBI industrial trends survey showed general improvement, indicating that the manufacturing sector is showing resilience early on in Q4, but performance was far from robust. The improvement is welcome news as the UK economy is being pressurised by increasing restrictions on activity amid rising COVID-19 cases.
- The orders balance in the CBI survey rose to a seven-month high in October, although it was still below normal levels. This was as a result of improved domestic and foreign demand.
- Encouragingly, output expectations for the next three months picked up considerably and were positive. Output over the past three months was reported to have fallen at a reduced rate.
- The simultaneously released quarterly CBI survey showed a marginal pick-up in manufacturers’ confidence. Investment plans were mixed and bolster the view that business investment is still the weak link of the UK economy.
- Employment fell at a record rate over the previous three months and employment plans are essentially flat for the next three months.
- While the CBI survey was better than expected and showed resilience in the manufacturing sector, the EY ITEM Club still suspects Q4 will be much more challenging for the UK economy and growth will be limited. This is likely to be due to increased restrictions on activity due to rising COVID-19 cases, a likely significant rise in unemployment and waning pent-up demand.
- Additionally, business caution and reluctance to invest in Q4 may be magnified by uncertainties over the future UK-EU trading relationship. There may, however, be some boost to growth in Q4 from significant stockbuilding ahead of the 31 December deadline for UK-EU talks.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for October was better than expected and showed a fair degree of resilience in the manufacturing sector.
“The orders balance picked up to be at the best level since March as it rose to -34% from -48% in September and a low of -62% in May, which had been the lowest level since October 1981. Nevertheless, at -34% in October, the balance was still markedly below the long-term average of -14%.
“The improvement in total orders in October seems to have been due to a firming in both domestic and foreign demand.
“Specifically, the export orders balance rose to a seven-month high of -46% in October from -56% in September and a record low of -79% in June (the series started in April 1977). Again though, at -46% in October, it was significantly below the long-term average of -18%.
“On another positive note, manufacturing volumes were reported to have fallen at a reduced rate over the three months to October. A balance of -8% reported a rise in output in the three months to October (the smallest negative balance since March) compared to -20% in the three months to September, -46% in the three months to August and a record low of -59% in the three months to July (the series started in July 1975).
“The CBI reported that output dropped in 10 out of 17 sub-sectors, with the headline decline in output being led largely by the aerospace sector.
“A balance of +15% of manufacturers expect to raise prices over the next three months, up markedly from -6% in September.”
Howard Archer continues: “The simultaneously released CBI quarterly survey showed that confidence among manufacturers rose marginally having picked up substantially in July from the record low seen in April. Specifically, the business optimism index edged up to 0% in October after improving to -1% in July from -83% in April. It had been at +23% in January (the highest since April 2014).
“Investment intentions were mixed and still relatively soft overall. The CBI reported that: “firms 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 pick up slightly. The share of firms citing uncertainty about demand as a factor to limit investment in the next year fall back to 56% from a survey high in July of 76%.””
Howard Archer adds: “A balance of -27% of manufacturers reported that headcount dropped over the past three months, compared to -47% in the July survey, which had been the weakest balance since April 2009. A small positive balance of +3% of manufacturers expect to increase headcount over the next three months.”