Expect more price hikes, warn UK manufacturers
UK manufacturers remained under significant pressure in the quarter to January, with output and orders declining, capacity utilisation falling and investment plans weak, according to the latest quarterly CBI Industrial Trends Survey.
The data shows that manufacturing output fell in the three months to January, and at a slightly faster pace relative to December. The downturn was broad-based across sub-sectors, but driven by the food, drink & tobacco, metal products, mechanical engineering and chemicals sub-sectors.
Notably, firms expect output to fall again in the quarter to April, though at a more moderate pace.
Cost pressures remain elevated, though unit costs rose at the slowest pace for over a year in the three months to January. Domestic and export selling prices were broadly stable over the past quarter, but looking ahead manufacturers expect cost pressures to increase over the quarter to April, with domestic and export selling price inflation tipped to accelerate too.
Manufacturers’ investment intentions remained weak. Firms plan to cut spending on buildings, plant & machinery, and training over the year ahead, held back by uncertainty about demand and inadequate net returns. Capacity utilisation fell to its lowest since July 2020, and employment continued to decline with further losses expected into the spring.
Average domestic prices were flat, easing from October (+2%, from +12% in October), whereas export prices fell marginally (-4%) for the second consecutive quarter. Both domestic and export prices are anticipated to rise in the next three months (+29% and +22%, respectively).
“Manufacturers are finding conditions extremely tough, with output and orders falling again. Many firms report seeing customers delay decisions, order only what they strictly need, or hold back from committing altogether, leaving order books thin and confidence fragile,” said Ben Jones, Senior Lead Economist at CBI.
“At the same time, cost pressures – from rising wages, high energy prices and taxes – are squeezing margins and weighing on competitiveness, pushing firms to plan price rises even as demand remains subdued.”
Jones said that the government must now focus on lowering the cost of doing business to unlock investment and growth.
“Recent pragmatism shown on areas such as day one rights is welcome, but manufacturers want to see the government expedite much needed energy costs support and deliver greater policy clarity more generally,” he said.
