By Maximilian Clarke

UK manufacturers reported a further slight weakening in total order books in December, while export orders remained well below their long-run average, the Confederation of British Industry (CBI) said today (Thursday).

As a result, firms expect production to fall over the coming quarter, according to the CBI’s latest monthly Industrial Trends Survey.

Of the 434 manufacturers responding, 18% reported total order books to be above normal, while 41% said that they were below. The resulting survey balance of -23% is the lowest since October 2010 (-28%).

Export demand also remained depressed. While 12% reported export order books to be above normal, 44% said that they were below. The resulting balance of -32% is the lowest since January 2010 (-33%) and still well below the long-run average (-21%).
In line with weakened order books, manufacturers expect to reduce production over the next three months. While 24% of firms believe output will rise in the next quarter, 32% expect to cut back on production. The resulting rounded balance of -8% is the third consecutive negative survey balance.

“Conditions in the UK manufacturing sector remain difficult, with demand both at home and abroad subdued,” said Ian McCafferty, CBI Chief Economic Adviser. “The weaker export performance no doubt reflects on-going instability in the Euro area, our biggest export market, and its knock-on impact on prospects for the real economy.

“A clear and orderly resolution to the crisis remains essential to prevent further adverse effects on both UK manufacturing and the wider economy, and to lift business confidence.”

Weak demand and output prospects have kept expectations for output price inflation muted. While 22% of manufacturers predict that they will raise output prices over the coming quarter, 15% expect to lower prices. The resulting balance of +7% is slightly higher than in recent months, but still significantly lower than stronger expectations seen in the first half of 2011.

Stock adequacy remained broadly in line with its long-run average (+14%) in December. A balance of +16% of firms reported stocks to be more than adequate for the second consecutive month.

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