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CBI Industrial Trends sees manufacturing still performing

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CBI

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17 September 2014

manufacturing, process, Jaguar, Land, Rover
Momentum might have been lost, but the latest CBI Trends survey is likely to maintain the impression that the manufacturing sector is still performing well

THE Confederation of British Industry Industrial Trends survey on Thursday is likely to maintain the impression that the manufacturing sector is still performing relatively well but has lost some momentum compared to earlier in 2014.

Specifically, we expect the CBI’s total orders balance to have eased back to +9% in September, after rising to +12% in August from +2% in July. This would be well above the index’s long-term average of +16%.

Meanwhile, we expect the balance of firms reporting output rose during the previous three months was stable, at around +12% in September, after falling to this level in August from +23% in July.

Latest hard data from the CBI shows manufacturing output rose 0.3% month on month (m/m) in July, as it had in June, thereby extending the modest rebound from May’s 1.3% month-on-month drop in output.

May’s relapse had followed five months of output gains. Consequently, year on year growth in manufacturing output moved back up to 2.2% in July, after moderating to a seven-month low of 1.9% in June from 3.7% in May and a peak of 4.3% in April.

The overall impression from the CBI, is that the manufacturing sector is still clearly expanding, but at a reduced rate compared to the early months of 2014.

This is disappointing for hopes that UK growth can be broad-based on a sustained basis and less dependent on the services sector. Of course, given its size, the services sector will always be the key growth driver.

It may well be that the increased uncertainty resulting from current heightened geopolitical tensions particularly related to Russia/Ukraine are causing some big-ticket manufacturing orders to be delayed or even cancelled.

In addition, weak Eurozone activity is clearly having a limiting effect on foreign demand for UK manufacturing goods, while the pound’s strength has not helped UK manufacturing exports.

Nevertheless, the prospects still look reasonable for manufacturers.

Hopefully, elevated consumer confidence, high and rising employment, and decent housing market activity will underpin demand for consumer durable goods, although muted earnings growth is currently a constraining factor. In addition, business investment is seen largely holding up well during the coming months, which would support demand for capital goods.

The recent marked retreat in the pound should also support UK manufacturing exports.

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