- The November CBI industrial trends survey indicates the manufacturing sector has remained fairly resilient so far amid the national lockdown in England, despite restrictions having some impact on activity
- The orders balance in the survey fell to -40% in November from -34% in October. This was the result of reduced domestic demand and also lower orders from abroad. Output expectations for the next three months weakened modestly but stayed in positive territory
- A positive development in the survey was that manufacturers reported output over the past three months fell at the slowest rate since the three months to September 2019
- A decline in the expectations for domestic prices suggests manufacturers believe they will have to price particularly competitively in the current environment to gain business
- The impact of the national lockdown in England and other restrictive measures on economic activity in Q4 2020 should be considerably less than occurred in April and overall in Q2 2020
- The EY ITEM Club forecasts there could be GDP contraction of around 4% in Q4. This would result in overall GDP contraction around 11.5% in 2020. Much will depend on what happens when the lockdown in England is due to end on 2 December.
- The Chancellor’s extension of the furlough scheme to the end of March should limit the near-term rise in unemployment and help activity, while there could be some boost to economic activity from stockbuilding ahead of the UK-EU transition arrangement ending on 31 December
Howard Archer, chief economic advisor to the EY ITEM Club, says:
"The CBI industrial trends survey for November showed some resilience but nevertheless indicated that manufacturers are being adversely affected by the national lockdown in England and other restrictions.
“The Government has stressed that it wants manufacturers to stay open during the lockdown, and lessons have been learned in keeping activity going from earlier in the year. Many factories have been adjusted to meet the social distancing requirements so employees can still work.
“The orders balance fell back to -40% in November, having previously improved to a seven-month high of -34% in October from -48% in September and a low of -62% in May, which had been the lowest level since October 1981. At -40% in November, the balance was significantly below the long-term average of -14%.
“The weakening in total orders in November seems to have been due to a falling back in both domestic and foreign demand.
“The export orders balance dipped to -51% in November after rising 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, at -51% in November, it was substantially below the long-term average of -18%.
“On a positive note, manufacturing volumes were reported to have fallen at the slowest rate for over a year in the three months to November. A balance of -6% reported a rise in output in the three months to November (the smallest negative balance since September 2019 when it was +1%) compared to -8% in the three months to October, -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 nine out of 17 sub-sectors in the three months to November, with the headline decline in output being led largely by the aerospace sector.A balance of +10% of manufacturers expect a rise in output over the next three months, down from +15% in the three months to October.
“A balance of -8% of manufacturers expect to raise prices over the next three months, down markedly from +4% in October. This suggests manufacturers believe they will have to price particularly competitively in the current environment to gain business.”