UK manufacturing is showing resilience in a challenging economy with orders and output growth steady, the CBI has said.
A survey conducted by the Confederation of British Industry indicated modest growth in the three months to July, while manufacturers’ optimism about the general business situation was broadly stable relative to the previous three months (-6 per cent).
Of the 398 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 29 per cent reported that total orders had increased in the three months to July, while 26 per cent said that they had fallen.
The survey's total order book balance rose from -11 per cent in June, its highest level since February and countering expectations of a decline to -12 per cent.
“Despite a further escalation in the Eurozone crisis, this survey shows some resilience in the UK manufacturing sector, with sentiment about the general economic situation broadly stable,” said CBI head of Economic Analysis Anna Leach.
“Both demand and production grew steadily in the three months to July, and this is expected to continue over the next three months.
“However, with Europe as our biggest export market, and while the Eurozone crisis continues unresolved, prospects for UK manufacturing will remain uncertain.”
The resulting balance of +3 per cent is above the long-run average (-3 per cent), but a little below the +8 per cent balance in the three months to April.
Earlier this week the Office for National Statistics reported that GDP contracted by 0.7 percent in the second quarter of 2012, its biggest drop since early 2009, driven in part by a marked drop in factory output.
Export orders weakened slightly (-6 per cent), but the balance was broadly in-line with its long-run average (-8 per cent).
Total orders are expected to grow at a similar pace over the next three months (+4 per cent), with export orders expected to be flat (0 per cent).
Output growth picked up slightly in the quarter to July, with 29 per cent of manufacturers reporting output volumes were up compared with the previous three months, and 21 per cent saying they were down.
The resulting balance of +8 per cent is the strongest seen this year, and above the long-run average (0 per cent).
A further modest pick-up in growth is expected over the next three months (+11 per cent).
Domestic and export prices were broadly flat in the three months to July (balances of -2 per cent and +2 per cent respectively).
Average unit cost inflation dropped sharply to its lowest level (0 per cent) since January 2004 (-1 per cent).
Manufacturers expect both domestic and export prices to remain broadly flat in the coming three months (balances of -3 per cent and -2 per cent respectively), while unit costs are expected to fall slightly (-5 per cent).
The past quarter saw manufacturers continuing to stockpile raw materials (+9 per cent), and unfinished and finished goods (+11 per cent and +8 per cent respectively).
Investment intentions for the next twelve months ticked down across all three categories, but remained relatively firm.
Intentions for product & process innovation were particularly strong (+19 per cent), and planned spending growth for plant & machinery (-4 per cent), and training & retraining (+10 per cent) were both in line with their long-run averages.
Reflecting continued uncertainty in the Eurozone, the number of firms citing uncertainty about demand as a factor likely to limit capital expenditure over the coming year was above the long-run average (+55 per cent compared with an average of +49 per cent).
The three months to July saw an increase in numbers employed (+13 per cent) for the eighth consecutive quarter, and firms expect headcount to be stable in the coming three months (-2 per cent).