Optimism among UK manufacturers has fallen for the first time in two years, the latest CBI Industrial Trends Survey reveals.
A balance of eight per cent of manufacturers saw new orders increase in the three months to July, an easing in the pace of growth seen in the previous five quarters, the CBI said. Manufacturers subsequently said they were less optimistic than three months ago - the first drop in sentiment since July 2009.
Economists said the survey indicated UK manufacturing had shifted down a gear and raised fears over total UK growth in the third quarter.
The UK grew by 0.2 per cent between April and June, compared with 0.5 per cent in the previous quarter, the Office for National Statistics (ONS) revealed yesterday.
Chancellor George Osborne said it was positive that the British economy was continuing to grow and vowed to maintain his course of action to tackle the UK deficit. But a weak manufacturing survey will concern the Chancellor, who has pinned his hopes on the private sector to lead the recovery as he rolls out huge public spending cuts.
Howard Archer, chief UK and European economist at IHS Global Insight, said the survey results were not “a happy combination for third quarter growth prospects”. “It is evident that manufacturing activity has shifted down a gear as domestic demand is held back by serious headwinds notably including tightening fiscal policy while recent slower global growth is dampening export orders,” he said.
The CBI survey indicated that over the next three months further easing in activity is expected, with orders expected to be unchanged and production likely to rise more modestly. A balance of 10 per cent of manufacturers expect to cut employment over the next three months, the CBI said.
Archer warned this will add to concerns that the private sector will not be able to compensate for increasing job losses in the public sector.
Investment intentions for the year ahead have also weakened, the CBI said, in particular, manufacturers are planning to spend less on plant and machinery.
Ian McCafferty, CBI chief economic adviser, said: “Orders and output growth in the manufacturing sector slowed slightly over the past quarter. This is in line with a broader slowing in production globally, with supply chains around the world impacted by the Japanese tsunami earlier this year. Sentiment has also been affected by concerns over the euro crisis, and the squabbling over the US debt ceiling.”