- The April CBI industrial trends survey was largely encouraging and fuels hope that the UK economy is headed for a robust rebound in Q2 as lockdown restrictions are eased.
- The orders balance dipped to -8% in April from March’s 23-month high of -5%. April’s balance was still at one of its highest levels for the last two years and above the long-term average.
- Output expectations for the next three months are positive. Output over the three months to April was reported to have risen modestly.
- The simultaneously released quarterly CBI survey showed a marked strengthening in manufacturers’ confidence which reached the highest level since April 1973. Investment plans were healthier across all categories, adding to hope that business investment will contribute significantly to the UK’s recovery.
- Manufacturers increased headcount over the past three months, and plans to increase headcount over the next three months were the highest since April 1974.
- The EY ITEM Club will be substantially raising its current 2021 GDP growth forecast of 5.0% in its upcoming Spring Forecast* – released on 26 April. 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 leading role in the UK recovery given the recent high savings ratios, especially as the labour market has been resilient and it now looks likely that unemployment will rise much less than had been expected, helped by the extension of the furlough scheme.
- 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 and their own prospects; this should be supported by the tax incentive to invest in the Budget.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for April was pretty healthy overall, and generally supported belief that the economy has started off the second quarter on the front foot as it benefits from the easing of restrictions. Manufacturing volumes were reported to have edged up in the three months to April with a balance of +3% reporting a rise in output. This matched the March balance of +3% and these are the highest balances since last May.
“Output grew in 11 out of 17 sub-sectors, with growth in the electronic engineering and aerospace sub-sectors offset by declines in food, drink & tobacco and motor vehicles.
“The orders balance edged back slightly to -8% in April after improving to a 23-month high of -5% in March from -24% in February and -38% in January. Nevertheless, April’s orders balance was at one of the highest levels for the last two years and was above the long-term average of -14%.
“There was improvement in foreign orders in April as the export balance rose to -18% from -20% in March and -39% in February. April’s balance was in line with the long-term average of -18%.
“Manufacturers are optimistic about the outlook with the balance of companies expecting output to rise over the next three months up to +36% in April from +30% in March. It had previously stood at -2% in February and -24% in January, the weakest level since mid-2016.
“A balance of +27% of manufacturers expect to raise prices over the next three months. The prices balance had increased to +20% in March from +3% in February and +4% in January. The April price balance is well above the long-term average of +3%. The CBI reported that rising costs are an increasing concern for many businesses and seem to be putting upward pressure on prices as firms try to protect their margins.”
Howard Archer continues: “The simultaneously released CBI quarterly survey showed that confidence among manufacturers strengthened appreciably to the highest level since April 1973. The business optimism index rose to +38% in April after dipping to -22% in January – as a lockdown was re-introduced – from 0% in October.
“Investment intentions were markedly healthier overall with the CBI reporting ‘a broad-based improvement, with firms expecting to spend more on buildings, plant & machinery, product & process innovation, and training & retraining compared to last year. Intentions across all categories were at their strongest in multiple years, most notably for plant & machinery.’
“A balance of +10% of manufacturers reported headcount rose over the three months to April which was the highest quarterly balance since July 2018 and was up from -10% in the January survey and -27% in the October survey.
“It was particularly encouraging to see a balance of +19% of manufacturers expect to increase employees over next three months, which is the highest forward-looking balance since April 1974.”