CBI industrial survey finds strong output growth

Oliver Haill Sharecast | 19 May, 2017 11:24 - Updated: 12:42 | | |

UK manufacturing output in the three months to May was much stronger than expected, according to a Confederation of British Industry survey published on Friday.

Driven by faster growth in export orders, the balance of manufacturing companies that reporting their order books were above normal levels was +9% greater than those reporting levels below normal, which was up from a balance of +4% in April and the highest in over two years. The market consensus was for no change from April's balance.

In addition, the balance of manufacturers expecting production to rise over the next three months increased to +28 in May, from +16 in April, albeit remaining below March’s recent peak.

However, fuelling concerns about the squeeze on British consumers from rising inflation, a balance of almost a quarter of the 432 manufacturers surveyed expected a sharp rise in average selling prices due to strong pricing pressures from inputs.

Another concern, which was raised in last month’s CBI survey is that manufacturers’ plans for investment in plant and machinery are at their lowest levels for six years.

The CBI's chief economist Rain Newton-Smith said: "Robust demand at both home and abroad is reflected in strong order books, and output is picking up the pace.

“On the other side of the coin though, we have mounting cost pressures and expectations for factory-gate price rises are running high."

Economists have pointed out that the CBI industrial trends survey and other survey evidence for the manufacturing sector has tended to be markedly more upbeat than the hard data from the Office for National Statistics.

Samuel Tombs at Pantheon Macroeconomics said the survey showed manufacturers are benefiting from the revival in world trade and sterling’s depreciation.

"The 3% year-over-year growth rate of manufacturing output signalled by the CBI’s survey, however, is not sufficient to offset fully the slowdown in the consumer sectors of the economy brought on by sterling’s depreciation," he said.

"What’s more, the risk that the UK leaves the EU without a deep trade deal in place is casting a cloud over the outlook for manufacturing," he added, pointing to the six year low in investment plans and suggesting capacity constraints might bite soon, preventing manufacturers from making the most of sterling’s depreciation.

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