Manufacturing in domestic market softens slightly as export markets boom

Domestic manufacturing output has decreased slightly in the first three months of the year, however exports are accelerating at an above-average pace.

These are the findings from the CBI’s latest Industrial Trends Survey, which showed that domestic orders were broadly unchanged since the previous quarter, the lowest growth since April 2016.

In contrast, however, optimism with regards to export prospects for the year ahead continued to improve at an above-average pace, while export orders growth accelerated at the fastest pace in more than 20 years. Meanwhile, inventories of raw materials rose at the fastest pace since 1977.

“Although manufacturing growth has slowed again this month, manufacturers continue to enjoy the fruits of stronger growth in Europe and the lower pound. For manufacturing to continue its resurgence in the years ahead, it will be critical for trade to remain as frictionless as possible with the EU - our closest and biggest trading partner,” commented Rain Newton-Smith, CBI Chief Economist.

“And, as the UK leaves the EU, it’s vital firms continue to pursue productivity gains, for example by sharing ideas on innovation, to improve their competitiveness overseas,” she added.

Employment grew at a similar pace to the last three months – above the long run average – with further growth expected next quarter.

Capacity pressures eased compared with the previous quarter, found the survey, when the proportion of firms with spare operating capacity was the lowest in 29 years.

Firms questioned intend to spend more on product and process innovation over the next year, while the balance of firms expecting to spend more on buildings rose to the highest in two years and well ahead of the long-run average.

Efficiency remains the predominant driver of investment, closely followed by replacement of existing capital (such as machinery).

Tom Crotty, Group Director of Ineos and Chair of CBI Manufacturing Council, said of the survey findings: “While we are seeing a slight softening in the domestic market, UK manufacturers continue to reap the gains from strong global demand. This is a good sign that our businesses are competitive on the world stage.

“But with concerns over labour shortages high, preserving this competitive edge will depend on manufacturers having ongoing access to the people and skills that they need from abroad. Businesses are ready to work with government to ensure an immigration system that is both consistent with the referendum result and supports economic growth.”