Manufacturing growth falters as bounceback runs out of steam

Hopes for the private sector to support Britain's recovery were dealt a blow today after new manufacturing figures fuelled fears the bounceback is running out of steam.

The latest industrial trends survey from business body the CBI showed that while output rose at its fastest pace in 15 years in the three months to July, expectations for growth have slowed markedly.

A balance of 6% of firms said they believed volume of output will rise in the next three months against 15% in June.

The reading for business optimism dropped to a balance of 10%, down sharply from 24% the previous quarter and the worst result since October.

Export orders - which led the manufacturing rebound earlier this year - have also slumped, with a balance of minus 12% in July against minus 2% in June, according to the CBI survey.

The report follows other industry surveys suggesting the recovery is past its peak.

The Chartered Institute of Purchasing and Supply's (CIPS) manufacturing activity index showed the pace of growth easing back in June as the rise in export orders almost ground to a halt.

CIPS service sector survey results also revealed growth slowing last month to its weakest for a year.

Jonathan Loynes, chief European economist at Capital Economics, said: "July's CBI industrial trends survey is a blow to hopes that a strong upturn in the external and industrial sectors will help to offset the impact of the coming fiscal squeeze."

However, today's figures from the CBI confirmed a decent past few months for the manufacturing sector, with a balance of 24% of firms seeing volume of output rise in the past three months.

This was the fastest growth since April 1995 and a hefty rise on the previous quarter's reading of a balance of 1%.

Gross domestic figures for the second quarter on Friday are expected to confirm a strong recovery, with most economics pencilling in quarter-on-quarter growth of 0.6%. This would be double the 0.3% seen in the first three months of 2010.

Mr Loynes added that while a double-dip recession in the manufacturing sector is unlikely, the CBI data signalled stalling growth.

"With industry having been one of the few parts of the economy showing decent growth in recent months, the survey adds to the recent evidence that the second quarter is likely to have been as good as it gets as far as the pace of the UK economic recovery is concerned," he said.

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