- An overall improved February CBI industrial trends survey adds to signs that the UK economy is coming off its January lows
- The CBI survey’s orders balance rebounded to a 12-month high of -24% in February after falling to -38% in January from -25% in December. The increase was driven by improved domestic demand, while export orders weakened. Output expectations for the next three months improved to a four-month high. However, output over the three months to February was reported to have contracted
- Today’s economic surveys ease some concern about the potential size of the economy’s Q1 contraction. However, it still appears that the UK is being more affected by the current lockdown and restrictions than it was by restrictions in Q4 2020. The EY ITEM Club expects the economy will contract in Q1, possibly around 4% quarter-on-quarter
- 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 given the recent high savings ratios, although much will depend on how much unemployment ultimately rises. 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
- The EY ITEM Club currently forecasts GDP growth of 5.0% in 2021 followed by expansion of 6.5% in 2022. This would mean the economy regains its peak level of Q4 2019 in Q3 2022
Howard Archer, chief economic advisor to the EY ITEM Club, says:
"The CBI industrial trends survey for February shows an overall improvement, although output in the three months to February was reported to have fallen at a slightly increased rate compared to the three months to January. The sector has been affected by lockdown and supply chain disruptions. The survey also shows an end to the temporary boost to manufacturing activity that had come in late 2020 from stockpiling and an increased demand from the EU ahead of the ending of the transition arrangement on 31 December.
“Manufacturing volumes were reported to have fallen modestly in the three months to February, with a balance of -8% reporting a rise in output. This was down from -2% in the three months to January.
“The CBI reported that output grew in 11 out of 17 sub-sectors. However, growth in these sub-sectors was outweighed by falls in others, particularly for motor vehicles & transport equipment and food, drink & tobacco.
“Encouragingly, the orders balance rebounded to a 12-month high of -24% in February after reaching -38% in January from -25% in December. Even so, at -24% in February, the balance was still below the long-term average of -14%.
“The improvement in total orders in February’s survey was due to stronger domestic demand. By contrast, the export balance fell to -39% in February after improving to -33% in January from -44% in December. This is significantly below the export balance’s long-term average of -18%.
“Positively, manufacturers are much less pessimistic about the outlook than they have been recently. The balance of manufacturers expecting output to rise over the next three months rose to a four-month high of -2% in February after falling to -24% in January – the weakest level since mid-2016 – from -6% in December.
“A balance of +3% of manufacturers expect to raise prices over the next three months, which is little changed from the +4% in January. This is exactly in line with the long-term average for the price balance of +3%.”