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Manufacturing Sector Faces Headwinds as CBI Survey Reveals Unexpected Output Decline

by Anna

In an unexpected turn of events, the sentiment within the manufacturing sector remained stagnant in the three months leading up to January, witnessing an unexpected decline in output volumes, according to the CBI’s latest quarterly Industrial Trends Survey. While a slight output rise is anticipated in the next quarter, concerns loom over weak orders and sales, reaching their highest constraint level in three years, with total new orders falling at their fastest pace since July 2020.

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The survey of 246 manufacturing firms highlights a surge in average costs, intensifying pressure on margins. While the growth in domestic selling price inflation remains unchanged, export selling prices experienced a rise over the quarter. Amidst these challenges, investment in tangible assets is projected to sharply decrease in the coming year, accompanied by a weakening outlook for innovation-related investments.

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Anna Leach, CBI Deputy Chief Economist, expressed concern over the unexpected deterioration in manufacturing conditions and emphasized the potential impact of global supply chain disruptions due to the diversion of commercial shipping away from the Red Sea. Leach highlighted the need for government support to instill confidence in manufacturers to invest, particularly in areas such as innovation, skills, and decarbonization.

Key Findings from the CBI Industrial Trends Survey:

Output volumes declined in the quarter to January, surprising analysts after being unchanged in December.

Total new orders experienced their fastest fall since July 2020, with manufacturers anticipating orders to remain unchanged in the next three months.

Growth in average costs per unit of output accelerated, standing well above the long-term average.

Domestic selling prices were reported as broadly stable, while export price inflation accelerated.

Investment intentions for the year ahead were mixed, with a projected increase in spending on training & retraining but a decline in investment in product & process innovation and tangible assets.

The main constraint on investment was uncertainty about demand, cited by 58% of manufacturers.

The CBI’s survey underscores the challenges facing the manufacturing sector, emphasizing the need for strategic government measures to address short-term challenges and support long-term sustainable economic growth.

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