The amount of manufacturing output and orders grew over the last quarter, with export volumes growth the strongest for two and a half years, according to the latest quarterly CBI Industrial Trends Survey.
The survey of 459 manufacturers revealed that competitiveness in European Union markets rose at the fastest pace since the series began in 2000, with competitiveness outside the union also improving at the quickest rate since 2009.
Domestic demand grew modestly, while export orders rose to +8%, the highest balance since April 2014 (+16%).
Over a quarter (27%) of firms said the volume of output over the past three months was up and 18% said it was down, giving a balance of +9%, whilst 29% of businesses reported an increase in total orders.
The outlook for demand over the next three months is generally positive, with export orders expected to grow +12%, along with more modest growth in domestic orders, though at a slower pace of +4%.
A rounded balance of +17% expect export orders to rise (29% expect an increase, and 13% a fall), whilst 27% of businesses anticipate a rise in output volumes, and 14% a fall, giving a balance of +13%.
But concerns persist about the availability of skilled labour, with almost a quarter of respondents observing that skilled labour availability could limit output over the next few months.
Rain Newton-Smith, CBI chief economist, said: “Manufacturers’ are optimistic about export prospects and export orders are growing, following the fall in Sterling.
“However, the weaker Pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead.
“Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important.”
Optimism about the business situation fell slightly again following last quarter’s sharp decline, as 20% of firms said they were more optimistic about the general business situation than three months ago, but 28% said they were less optimistic, giving a balance of -8%.
However, this was an improvement on the previous quarter (-47%), whilst optimism about export prospects for the year ahead also recovered, (+9%), the highest since April 2014 (+27%).
The research also revealed manufacturers’ investment intentions improved compared with the previous twelve months for product and process innovation, rising from +13% in the previous quarter to +23%, and spending on training and retraining also continued to grow (+15%), although at a marginally slower rate than the previous quarter (+16%).
Spending intentions for plant and machinery (0%) and buildings (-10%) returned above their respective long-term average, and following the sterling’s sharp depreciation, unit costs rose at their fastest pace in three years, and are expected to continue growing at above their long-term average over the quarter ahead.
This was accompanied by modest domestic price inflation, as manufacturers sought to pass on some of the cost increase to their customers. Despite welcome signs of improved export demand and competitiveness, the majority of exporting manufacturing firms have said that the fall in the pound since June has had a negative impact on their business.
In a supplementary question asked alongside this month’s survey, 47% of manufacturing firms cited sterling’s depreciation as having a negative impact, against 32% citing a positive impact.
Ms. Newton-Smith added: “Firms will be seeking further details on a long-term, industrial strategy from the Autumn Statement that combines sectors and places.
“Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible.”