Press release

21 Jan 2021 London, GB

CBI Industrial Trends Survey signals manufacturing sector saw challenging start to Q1 – EY ITEM Club comments

The January CBI industrial trends survey indicates a loss of momentum in manufacturing activity with the sector affected by lockdowns and other factors.

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Related topics Growth COVID-19
  • The January CBI industrial trends survey indicates a loss of momentum in manufacturing activity with the sector affected by lockdowns and other factors
  • The sector was more concerned about its outlook, notably including the potential disruption to output from supply issues with materials and components due to COVID-19 and the UK’s new relationship with the EU
  • It is also likely that the manufacturing sector has been affected by the end of the temporary boost it received in late-2020 from stockpiling and a lift to foreign orders ahead of the UK and EU transition period ending on 31 December
  • However, manufacturers reported that output was essentially stable over the past three months, showing that the sector has recently been among the more resilient sectors of the economy. Lessons have been learned throughout 2020 in keeping activity going amid COVID-19 restrictions
  • The orders balance in the CBI survey fell to -38% in January from a 10-month high of -25% in December. This was the result of both softer domestic and foreign demand. Output expectations for the next three months weakened to be at their lowest since mid-2020
  • The quarterly CBI survey showed a decline in manufacturers’ confidence. Disappointingly, investment plans were largely weaker, adding to concerns over extended weak business investment weighing on the economy
  • Encouragingly, employment reduced at the slowest rate since October 2019 over the past three months. In addition, headcount is expected to be essentially flat over the next three months
  • With lockdowns back in place and set to last until mid-February at least, the EY ITEM Club expects the economy will experience a clear contraction in Q1 – possibly in the region of 3-4% quarter-on-quarter. Growth in Q4 2020 is likely to have been flat across the quarter, thanks to a surprisingly limited contraction in November
  • After Q1, the EY ITEM Club expects the economy to benefit progressively through 2021 from the roll-out of COVID-19 vaccines. Consumers look well-placed to play a key role in the recovery given recent high savings ratios, although much will depend on unemployment numbers. After an extended period of weakness, business investment is expected to gain momentum over the course of the year as companies grow more confident in the economy
  • However, the EY ITEM Club’s December forecast of 6.2% GDP growth for 2021 is now clearly too optimistic: 5.0% growth may well now be the limit for 2021.  

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

“The CBI industrial trends survey for January showed the sector lost appreciable momentum at the start of the year amid the impact of COVID-19 lockdowns.

“It is also likely that there was a waning of the temporary boost to manufacturing activity that had come late on in 2020 from stockpiling and increased demand from the EU ahead of the ending of the Brexit transition arrangement on 31 December.

“Manufacturers were also more concerned about the outlook, particularly around the supply of materials and components being affected by the new UK-EU relationship.

“In the latter part of 2020, the manufacturing sector had been among the more resilient sectors of the economy. Lessons have been learned throughout 2020 in terms of keeping activity going with COVID-19 restrictions in place. Many factories have been adjusted to meet the COVID-19 social distancing requirements so employees can still work on site.

“Indeed, on a reasonably positive note, manufacturing volumes were reported to have been essentially stable over the three months to January with a balance of -2% reporting a rise in output. This was up from -6% in December.

“The CBI reported that output grew in nine out of 17 sub-sectors, with expansions in pharmaceuticals and mechanical engineering output offset by declines in food, drink & tobacco volumes.

“The orders balance fell to -38% in January, after improving to a 10-month high of -25% in December from -40% in November. At -38% in January, the balance was substantially below the long-term average of -14%.

“The softening in total orders in January was due to a moderation in both domestic and foreign demand.

“Near-term output expectations weakened in January to their lowest level since June 2016. A balance of -15% of manufacturers expect a rise in output over the next three months, down from -6% in the three months to December.

“A balance of 7% of manufacturers expect to raise prices over the next three months, up from 0% in December.”

Quarterly survey

Howard Archer continues: “The simultaneously released CBI quarterly survey showed that confidence among manufacturers weakened appreciably. The business optimism index dipped to -22% in January from 0% in October. This was significantly influenced by increased pessimism over export prospects.

“Investment intentions were weaker overall. The CBI reported investment intentions for the next year have declined for plant & machinery and product & process innovation. Capital expenditure on buildings is expected to decline next year to a similar extent to last quarter. Spending on training & retraining is expected to be broadly unchanged compared to last year.

“A balance of -10% of manufacturers reported that headcount fell over the past three months, compared to -27% in the October survey. The latest figure is the smallest decline since October 2019. Headcount is expected to be essentially flat over the next three months with a balance of -1% of manufacturers expecting to increase headcount.”