- The December CBI industrial trends survey indicates the manufacturing sector achieved a reasonable end to Q4 despite the national lockdown in England and other restrictions
- The orders balance in the CBI survey rose to a 10-month high of -25% in December from -40% in November. This was primarily the result of improved domestic demand; there was a limited pick-up in orders from abroad. Output expectations for the next three months improved modestly but were modesty in negative territory
- Manufacturers reported output over the past three months fell at the equal lowest rate since last the three months to September 2019
- Flat price expectations for the next three months suggests manufacturers believe they will have to price competitively in the current environment to gain business
- The EY ITEM Club forecasts Q4 GDP contraction to be limited to around 1.5% quarter-on-quarter. This would mean an overall GDP contraction of 11.1% over 2020
- The sector may well see some near-term easing back of activity as stockpiling comes to an end
- However, positive vaccine developments offers the manufacturing sector hope for the future
- Manufacturing activity has clearly been supported by stockpiling as producers have sought to acquire critical inputs before the UK-EU transition arrangement ends on 31 December. The sector may well see some near-term easing back of activity as stockpiling comes to an end. There have also been reports by the purchasing managers of foreign orders being lifted by purchases by EU companies ahead of the ending of the withdrawal agreement, although the CBI’s export balance showed only modest improvement in December
- However, positive vaccine developments offer the manufacturing sector hope for the future
- The sector will obviously be hoping that the UK and EU can agree a Free Trade Agreement over the coming days
Howard Archer, chief economic advisor to the EY ITEM Club, says: "The CBI industrial trends survey for December showed the sector had a decent end to the year with manufacturers showing resilience to ongoing tough restrictions on activity following the ending of the national lockdown in England.
“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 rose to a ten month high of -25% in December after dipping to -40% in November from a seven month high of -34% in October. It had previously recovered to October’s level from -48% in September and a low of -62% in May, which had been the lowest level since October 1981. At -25% in December, the balance was below the long-term average of -14%.
“The pick-up in total orders in December seems to have been due to a falling back in both domestic and foreign demand
The export orders balance rose to nine amonth high of -44% in December after dipping to -51% in November from -46% in October. It had previously improved to -46% in October from a record low of -79% in June (the series started in April 1977). Again, at -44% in December, it was clearly below the long-term average of -18%.
On a positive note, manufacturing volumes were reported to have fallen at the equal slowest rate for over a year in the three months to December. Balance of -6% reported a rise in output in the three months to December the same as in the three months to November and the smallest negative balance since September 2019 (when it was +1%). This is up from -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 seven out of 17 sub-sectors in the three months to December, with the headline decline in output being led largely by motor vehicles and the 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 the three months to November.
“A balance of 0% of manufacturers expect to raise prices over the next three months, up from -8% in November. This suggests manufacturers believe they will have to price particularly competitively in the current environment to gain business.”