By Daniel Hunter

Manufacturing orders were flat in the three months to January, while output was stable for the second quarter in a row, the CBI said.

Both orders and output are expected to rise moderately over the next three months, and the employment and investment picture continues to look relatively positive.

Of the 389 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 25% reported that total new orders had risen, while 28% said they fell. The resulting rounded balance of -4% disappointed expectations of growth (+8%), but the rate of decline in orders was slower than in the previous quarter (-13%).

Within total orders, export orders continued to fall for the third consecutive quarter (-13% compared with -17% in the previous quarter), against expectations that they would stabilise. However, manufacturers anticipate a resumption of growth in export orders in the coming three months (+7%), underpinning fairly robust expectations for total orders (+14%).

Output growth underperformed against expectations once again and was broadly flat for the second consecutive quarter (-2%). Manufacturers expect to raise output in the next quarter (+8%), although this represents the lowest expectation since October 2011 (-11%).

“While domestic demand and business optimism have steadied, export demand remains a concern for manufacturers, with orders continuing to fall, albeit at a slower rate," Anna Leach, CBI Head of Economic Analysis, said.

"There are encouraging signs of stability in overall demand, however, with domestic orders, export orders and production expected to rise in the quarter ahead.”

While optimism regarding the business situation was unchanged (0%), firms remained concerned about export prospects for the year ahead (-11%). Furthermore, 56% of firms cited price competition from overseas competitors as a factor likely to limit export orders in the next three months. This is the highest proportion since July 2008 (58%), although still a little below average (59%). Concerns around political and economic conditions abroad also remained high (31%).

There was an increase in the proportion of firms identifying orders or sales as a factor likely to limit output in the next three months, to 81%. This was the highest proportion since April 2010 (82%) and is mirrored by manufacturers’ concerns that uncertainty about demand could limit capital expenditure authorisations over the next year (cited by 62% of respondents - the highest since April 2009, when it stood at 66%).

However, employment and investment indicators in this survey are somewhat better. Numbers employed were flat (+2%), beating slightly negative expectations (-4%) with manufacturers expecting to increase headcount in the coming three months (+13%).

Investment intentions for the year ahead for plant & machinery improved on the previous survey. A balance of +6% of firms expect to spend more in this area, against the long-run average of -9%. Meanwhile, the balance of respondents intending to invest more in product and process innovation remained high at +24% (long-run average +10%).

Domestic prices picked up in this quarter (+7%) and the rate of inflation is expected to accelerate further in the coming three months (+21%), driven by the food, drink and tobacco sector. However, manufacturers’ export prices fell for the second consecutive quarter (-5%).

Average unit cost growth saw little change from the last survey (+21% from +20%), and is expected to continue on this path in the next three months (+23%).

Stocks of finished goods (+5%) and raw materials (+4%) rose a little, but are expected to level off in the next quarter (-1% and -5% respectively).

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