UK manufacturing exports grow as domestic demand holds steady

The survey of 356 manufacturers revealed that optimism about general business conditions deteriorated marginally, while domestic orders were largely unchanged on the quarter. Output growth slowed somewhat, but remained well above the long-run average.

In contrast, optimism regarding export prospects for the year ahead continued to improve at an above-average pace, while export orders growth accelerated at the fastest pace in more than 20 years. Meanwhile, inventories of raw materials rose at the fastest pace since 1977.

Employment grew at a similar pace to the last three months – above the long run average – with further growth expected next quarter. While skilled labour diminished as a likely constraint on output in the quarter ahead, concerns that labour availability would constrain investment picked up again. Manufacturers expect to spend more on training and retraining over the next twelve months.

Capacity pressures eased compared with the previous quarter, when the proportion of firms with spare operating capacity was the lowest in 29 years. Firms intend to spend more on product and process innovation over the next year, while the balance of firms expecting to spend more on buildings rose to the highest in two years and well ahead of the long-run average. Efficiency remains the predominant driver of investment, closely followed by replacement of existing capital (e.g. machinery).

Average unit cost growth edged lower, and domestic price growth also slowed slightly, while expectations for price growth returned to around the long-run average from last quarter’s 44 year high.

Rain Newton-Smith, CBI chief economist, said: “Although manufacturing growth has slowed again this month, manufacturers continue to enjoy the fruits of stronger growth in Europe and the lower pound. For manufacturing to continue its resurgence in the years ahead, it will be critical for trade to remain as frictionless as possible with the EU - our closest and biggest trading partner.

“And, as the UK leaves the EU, it’s vital firms continue to pursue productivity gains, for example by sharing ideas on innovation, to improve their competitiveness overseas.”

Tom Crotty, group director of Ineos and chair of CBI Manufacturing Council, said: “While we are seeing a slight softening in the domestic market, UK manufacturers continue to reap the gains from strong global demand. This is a good sign that our businesses are competitive on the world stage.

“But with concerns over labour shortages high, preserving this competitive edge will depend on manufacturers having ongoing access to the people and skills that they need from abroad. Businesses are ready to work with government to ensure an immigration system that is both consistent with the referendum result and supports economic growth.”

CBI www.cbi.org.uk