- A second successive – and significant – monthly improvement in the CBI industrial trends survey adds to evidence that the UK economy has come off its January lows.
- The orders balance in the CBI survey climbed to a 23-month high of -5% in March, up from -24% in February and -38% in January. This was driven both by improved domestic and foreign demand. Output expectations for the next three months improved substantially to a 43-month high. Output over the three months to March was reported to have edged up.
- The March survey fuels belief that, while the economy is highly likely to have contracted in Q1 as lockdown affected activity, the decline in GDP was probably significantly less than had originally been expected.
- The EY ITEM Club now suspects that the economy contracted by around 1.5% quarter-on-quarter (q/q) in Q1, compared to the 3-4% q/q fall in GDP originally anticipated.
- The EY ITEM Club is likely to raise its current 2021 GDP growth forecast of 5.0%. The economy is expected to benefit progressively from Q2 as restrictions on activity are eased, supported by the roll-out of COVID-19 vaccines.
- Consumers look well-placed to play a key role in the UK recovery given the recent high savings ratios, especially as it now looks likely that unemployment will rise much less than had been forecast. Additionally, 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; this should be supported by the Budget’s investment incentives.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for March was improved overall after a modest pick-up in February. This followed a marked contraction in January. The manufacturing sector was affected by lockdown restrictions and supply chain disruptions at the start of 2021, but there are signs that these challenges have eased.
“Manufacturing volumes were reported to have risen slightly in the three months to March, with a balance of +3% reporting a rise in output. This was up from -8% in the three months to February and was the highest balance since last May.
“The CBI reported that output grew in eight out of 17 sub-sectors, led by electrical engineering and plastics products.
“Encouragingly, the orders balance improved substantially to a 23-month high of -5% in March, up from -24% in February and -38% in January. Furthermore, at -5% in March, the balance was clearly above the long-term average of -14%.
“The improvement in total orders in March was due to both stronger domestic and foreign demand. The export balance rose to -20% in March after dipping to -39% in February from -33% in January. This was broadly in line with the long-term average of -18% for the export balance.
“Manufacturers are much more optimistic about the outlook. The balance of manufacturers expecting output to rise over the next three months increased to a 43-month high of +30% in March from a -2% in February and -24% in January, which had been the weakest level since mid-2016.
“A balance of +30% of manufacturers expect to raise prices over the next three months, up from +3% in February and +4% in January. This is broadly in line with the long-term average for the price balance of +3%.”