Manufacturers sentiment edges up, CBI report finds

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Sentiment among manufacturers improved for the first time in two years, according to the CBI’s quarterly Industrial Trends Survey for July. Output volumes stabilised in the three months to July, having fallen steadily since the February survey, and are expected to grow next quarter.

Growth in domestic selling prices slowed for a fifth consecutive quarter in the three months to July, but growth in unit costs picked up, implying pressure on manufacturers’ margins.

Investments intentions generally weakened, with rising shares of firms citing concerns about the availability of internal finance and the cost of finance - excluding the pandemic, the share of manufacturers citing the cost of finance as a barrier to investment rose to its highest since 1991.

The survey, based on the responses of 239 manufacturing firms, found:

  • Business sentiment rose for the first time since July 2021 (balance of +6%, from -2% in April). Export optimism for the year ahead rose for the first time since October 2021 (+5%, from -17% in April).
  • Output volumes were flat in the quarter to July, ending five consecutive rolling quarters of decline (balance of +3%, from -6% in the three months to June). Firms expect output to expand over the next three months (+9%).
  • Total new orders fell in the quarter to July (balance of -6%, from -3% in April), but new orders are expected to be unchanged over the next three months (+0%).
  • Growth in average costs per unit of output accelerated in the quarter to July, having slowed over the four previous quarters (balance of +57%, from +50%).
  • Growth in domestic selling prices eased significantly in the quarter to July (balance of +18%, from +32%). Both domestic (+18%) and export (+21%) price growth is expected to remain elevated over the next three months.

Ben Jones, CBI lead economist, said: “While there are reasons for optimism among manufacturers this quarter, the overall picture is still subdued. Output has stopped falling, supply chains continue to recover and concerns over labour shortages have eased a little. But cost pressures remain acute and there are worrying signs that a squeeze on margins and higher finance costs are now hitting investment plans.

“In a challenging environment for manufacturing investment, confidence-building measures have a big role to play, whether that’s scaling up Made Smarter into a national programme or providing clearer signals of intent over the UK’s response to the US Inflation Reduction Act and the EU’s Green Industrial Plan.”