Optimism within the sector fell for a third consecutive quarter. However, investment intentions generally improved, and employment within the sector continued to grow at a robust pace, though less quickly than expected last quarter (for the third quarter running). Concerns over shortages of labour and shortages of components and materials remained acute.
The survey, based on the responses of 237 manufacturing firms, found:
- Business sentiment fell for a third consecutive quarter, but at a slower pace than in April (-21% from -34% in the quarter to April).
- Output volumes in the quarter to July grew at the slowest pace since the quarter to April 2021 (balance of +6%, compared with +25% in quarter to June and a long-run average of +4%), with a similar rate of growth expected in the three months to October (+6%). Output rose in 10 out of 17 sub-sectors, with headline growth driven by food, drink & tobacco, and aerospace.
- Average costs in the quarter to July increased at a slightly slower pace compared with the previous quarter, but growth remained well above average (+82%, compared with +87% in April and a long-run average of +31%). Domestic price growth in the quarter to July also eased slightly (+51%, from +60% in April; the long-run average is +13%). Cost growth is expected to slow a little further in the quarter to October (+77%), while prices are expected to rise at a similar pace as in the last quarter (+48%).
- Investment intentions for the year ahead picked up in comparison to April for plant & machinery (+17% from +9%), product & process innovation (+10% from +1%) and training (+10% from -3%). Investment in buildings is expected to fall slightly over the year ahead (-7% from -6%, though this remains above the long-run average of -17%.
- Numbers employed grew at a similar rate to the previous quarter (+18% from +21%), with a similar rate of increase expected in the next three months (+19%).
Anna Leach, CBI deputy chief economist, said: “The manufacturing sector has been a relative bright-spot in our economic surveys over recent months, but with output and orders now softening, conditions are becoming more uncertain for a sector already being buffeted by high-cost inflation and ongoing supply challenges. It is encouraging, however, to see investment intentions firming.
"Stronger investment will be vital if the UK is to reinvigorate growth and keep recession at bay. The new prime minister will need act quickly to fan the flames of these ambitions by announcing a permanent successor to the Super Deduction and urgently reforming an outdated business rates system that currently acts as a tax on investment.”
Maddie Walker, head of Industry X in the UK at Accenture, said: “Manufacturers are still contending with sky-high costs and uncertainty, and while order books remain above normal for now, a continued easing in demand will test their resilience.
"There are strong signs that manufacturers are pursuing long-term strategies to see themselves through current volatility with investments in their people, plants and machinery. Rather than pull back on innovation, investing in technology will help to improve productivity, keep costs down, and unlock new ways to make products more effectively.”
