- An upbeat May CBI industrial trends survey fuels hope that the UK economy is headed for a robust Q2 rebound as lockdown restrictions continue to ease.
- The orders balance in the CBI survey rose to +17% in May, the highest reading since December 2017. This was almost entirely due to improving domestic demand, as there was only a marginal pick up in foreign orders.
- Output over the three months to May was reported to have risen at the fastest rate since December 2018, while expectations for the next three months are positive.
- An increased number of manufacturers expect to raise prices over the next three months to counter rising costs, adding to growing concerns over inflation.
- The May CBI survey supports the EY ITEM Club recently increasing the 2021 GDP growth forecast to 6.8% – growth could even end up higher than this.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The CBI industrial trends survey for May was healthy, and supported the view that the economy is heading towards a robust second quarter rebound as it benefits from the easing of restrictions.
“Manufacturing volumes were reported to have risen strongly in the three months to May with a balance of +18% reporting a rise in output. This was the highest level since December 2018 and up from balances of +3% in both April and March.
“The CBI reported that output grew in 12 of 17 sub-sectors, with growth driven by chemicals, electronic engineering, and metal products.
“The orders balance rose to a 41-month high of +18% in May after edging back slightly to -8% in April from a previous 23-month high of -5% in March. At +18% in May, the orders balance was substantially above the long-term average of -14%.
“May’s significant improvement in orders was almost entirely driven by domestic demand. The export orders balance only edged up to -17% in May from -18% in April, -20% in March and -39% in February. This was essentially in line with the long-term average of -18% for the export balance.
“Manufacturers are optimistic about the outlook. The balance of manufacturers expecting output to rise over the next three months stood at +33% in May after increasing 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 +38% of manufacturers expect to raise prices over the next three months – the highest since January 2018 – as supply chain issues increase cost pressures. The prices balance has seen a significant upwards trend from +27% in April, +20% in March and +3% in February. This is well above the long-term average for the price balance of +3%.”