Manufacturing blow as CBI reports export slump

Hopes for recovery in the struggling manufacturing sector were dealt a blow today as a survey revealed exports slumped to their lowest level in more than a decade.

The employers organisation the Confederation of British Industry (CBI) blamed weak overseas demand for holding back recovery as its June industrial trends survey of 566 firms found 58 per cent of businesses reported below average export orders, while just 6 per cent reported an increase.

The resulting balance of 52 per cent indicating slumping foreign trade is the worst since October 1998, and reverses the slight improvement seen since March.

The CBI found a 51 per cent balance of manufacturers reported that their overall order books were below normal - an improvement on the balance of between 56 per cent and 58 per cent seen in the previous four months.

Economists, who had hoped for better news after encouraging official data on the sector earlier this month, greeted the survey with disappointment.

The pound's changing fortunes were thought to have played their part as, while a generally weaker sterling has helped boost UK manufacturers, its recent rally could have hurt exporters.

A pound is now worth around $1.63 and €1.16, levels not seen since the end of last year although still well off 2007 highs - when sterling rose to more than $2 and €1.5.

Ian McCafferty, the CBI's chief economic adviser, said: "Export orders are no better than they were a few months ago, reflecting the continued weakness of overseas demand for UK-made goods.

"As such, conditions for UK manufacturers remain challenging with volumes of total orders still at very weak levels."

"However, manufacturing firms do expect output to fall at a much slower pace compared to the beginning of the year, as the drastic action they have taken to reduce stocks appears to be paying off.

"Although the stock position somewhat improved on previous months, stock levels remain high relative to demand."

The CBI found a balance of 17 per cent expected the volume of output to decrease over the next quarter, unchanged from May.

Firms surveyed said they were still planning on lowering their domestic prices over the next three months but at a slower rate than previously forecast.

Alan Monks of JP Morgan said the output expectations of manufacturers were "a disappointment" and much worse than the 4 per cent balance expected to report a fall.

Office for National Statistics (ONS) figures out earlier this month indicated that the downturn for manufacturers came to an end in March, with a 0.2 per cent increase in month-on-month output and April's figures indicated that the industry had maintained the rate of growth. It was the first time the sector has seen growth since February 2008.

Monks said that while the survey was not as positive as the official data, "the gains in the CBI to date still point to a significant improvement in growth momentum in the current quarter".

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