Manufacturing output expectations fall amidst Covid-19 outbreak

Latest News Tue, Mar 24, 2020 4:11 PM

Manufacturing output expectations dropped to their weakest since the financial crisis, as the COVID-19 outbreak gained pace in the UK and Europe.

That’s according to the latest CBI monthly industrial trends survey conducted between 25 February and 13 March.

In another early sign of the impact of the pandemic, the survey of 288 manufacturers reported that both total and export order books worsened considerably on February.

Manufacturing output volumes fell in the three months to March, but at a roughly similar pace to February. This marks the sixth month in a row of falling output in the sector. Nine out of the 17 sub sectors reported output volumes expanding, led by the chemicals, food, drink & tobacco, and electronic engineering sub-sectors. However, growth in these sectors was offset primarily by a sharp drop in output in the motor vehicles & transport equipment sub-sector.

Respondents also stated that stock adequacy for this month was roughly in line with its long-run average. Output prices are expected to rise somewhat in the next three months.

Anna Leach, CBI Deputy Chief Economist, said: “The manufacturing sector is facing unprecedented challenges due to COVID-19, such as widespread disruption to supply chains and weakening demand due to domestic containment measures.

“With expectations for output set to fall in the coming months, it’s now more important than ever manufacturers get the support they need.

“The Chancellor’s offer of substantial payroll support, fast access to cash and tax deferral will help prevent job losses and alleviate some strain. But all measures must be constantly assessed to ensure the UK’s manufacturing sector emerges from this crisis with the minimum possible damage.”

Tom Crotty, Group Director of INEOS and Chair of CBI Manufacturing Council, said: "Given the hugely challenging circumstances faced by all businesses across the country as a result of coronavirus, it is not surprising that manufacturers are also feeling the impact. The government’s various support measures have been welcome, but it will be essential to keep its response under continuous review to ensure that firms get through the crisis.

“The outbreak of coronavirus has shone a light on the world-leading expertise and capability of UK manufacturing. The inspiring reaction by manufacturers to the government’s drive to produce thousands of ventilators and other essential products and materials is testament to the quality of firms and people in our sector. Manufacturers stand ready to help the country through the current crisis in any way they can.”

Key findings:

  • 15% of manufacturers reported order books above normal, while 44% reported them to be below, giving a balance of -29% (compared to -18% in February). This is below the long-run average of -13%.
  • 13% of firms said their export order books were above normal, while 41% said they were below normal, giving a balance of -28% (compared to -17% in February). This is below the long-run average of -17%.
  • 24% of firms said the volume of output over the last three months was up while 33% of firms said it was down, giving a rounded balance of -8% (from -11% in February).
  • Manufacturers anticipate output volumes to contract at a faster pace in the next three months (-20%), marking the weakest expectations since the financial crisis (April 2009 -32%).
  • 17% of firms said their stocks were more than adequate, while 5% said they were less than adequate, giving a balance of +12%. This balance is roughly in line with the long run average of +13%.
  • Average selling prices are expected to rise in the next three months (+7%).

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