Sentiment across the manufacturing sector fell at the fastest pace in over two years in January, according to the Confederation of British Industry’s (CBI) latest quarterly Industrial Trends Survey.
Manufacturing output volumes fell over the quarter to January, though less sharply than in the quarter to December. Output is expected to fall further in the three months to April.
The volume of total new orders decreased in the quarter to January, reflecting steep declines in both domestic and export orders, with the latter falling at the fastest pace since July 2020.
Over the next three months, manufacturers expect the volume of total new orders to fall at the fastest pace since the onset of the COVID pandemic in April 2020, with 79% of respondents citing the condition of order books as a factor likely to limit output over the next quarter (the highest share since July 2020).
Manufacturers reported increased cost pressures: growth in average costs accelerated in the quarter to January, compared with October, while expectations for growth in costs in the three months ahead rose to their strongest in over two years.
Domestic and export selling price inflation was muted in the three months to January, but both are expected to rise rapidly in the three months to April.
Investment intentions for the year ahead have deteriorated markedly across all categories. Manufacturers expect to reduce spending on buildings, plant & machinery, product & process innovation (which saw the weakest balance since 2009), and on training & retraining.
Manufacturers cited uncertainty about demand, inadequate net returns and access to internal finance as key factors constraining investment.
The outlook for hiring has also weakened. Manufacturing headcount fell slightly in the quarter to January, and manufacturers expect numbers to fall again in the quarter to April, and at the fastest pace since July 2020.
Ben Jones, Lead Economist, CBI, said: “Manufacturers have entered the New Year in a grim mood. Confidence has evaporated over the last three months as orders have dropped.
“A fall in domestic deliveries comes amid widespread concerns over the impact of the increase in National Insurance contributions, minimum wages and changes to employment law on firms’ operating costs. And a strong focus on managing operational expenditure is leading manufacturers to cut back their investment and hiring plans.
“Meanwhile, export prospects appear worse than at any time since the pandemic, reflecting a slowdown in overseas demand and reports of ongoing difficulties securing supply contracts with customers based in the EU.
“In comments to the survey, several firms noted concern that negative sentiment risks becoming self-fulfilling.
“The government can play a role in re-booting confidence by sending clear signals of intent on policies that could support the manufacturing sector, notably delivering an industrial strategy that helps the UK win the global race for growth, matching skills to economic needs, and accelerating our energy transition and resilience.”
