Manufacturing output fell in the three months to July, according to the latest quarterly CBI Industrial Trends Survey, extending a period of flat or falling volumes that began in mid-2024.
The decline in output volumes was broad-based, but driven by the food, drink & tobacco, paper, printing & media and metal products sub-sectors. Just two sub-sectors (aerospace, and motor vehicles & transport equipment) reported an increase in output.
Orders or sales remain the most cited constraint on output over the next three months, with the share of firms citing this standing above historical norms, while the share citing issues with materials or components fell from a three-year high in April, but remains elevated.
This comes as sentiment among UK manufacturers continued to deteriorate, with optimism about both the business situation and export prospects declining.
The volume of total new orders fell in July, at the fastest pace in six years, reflecting declines in both domestic and export orders. Manufacturers expect the total volume of new orders to decline again in the three months to October, at a rapid pace.
Cost pressures strengthened in the three months to July, with unit costs rising at their fastest pace since the quarter to October 2022. Both domestic and export selling prices also rose, at an above average pace. Manufacturers expect costs growth to slow slightly next quarter but to remain well above long-run averages.
Meanwhile, expectations for growth in domestic prices are their weakest since October 2024, and export prices are expected to fall. With costs rising more quickly than prices, the implication is that profitability is being squeezed. It is telling that the share of firms seeing the availability of internal finance as a constraint on investment has risen to its highest in six years.
Against this backdrop, investment intentions remain weak. Firms plan to cut investment in buildings, plant & machinery, innovation and training over the year ahead, held back by uncertainty about demand, inadequate net returns and a lack of internal finance. Employment has also continued to fall, with deeper cuts to headcount expected over the next three months.
Ben Jones, CBI Senior Lead Economist, said: “We’re seeing manufacturers being squeezed from both sides. Costs continue to climb while weak demand limits their ability to raise prices – leaving firms to absorb the pressure through shrinking margins, weaker investment and further cuts to employment.
“If the new administration is serious about reindustrialising Britain, restoring industrial competitiveness must be one of its first priorities. Cutting industrial electricity costs – which remain around 45% above the G7 median – would give manufacturers greater confidence to invest, expand and create jobs.”
The survey, based on the responses of 338 manufacturing firms, found:
- Business sentiment deteriorated in July, with manufacturers’ optimism about both the business situation (weighted balance of -36%) and export prospects (-23%) declining.
- Output volumes fell in the quarter to July, at a slower pace relative to the quarter to June (-24%, from -33% in the three months to June). The decline in output volumes was broad based (13 out of 17 sub-sectors), driven by declines in the food, drink & tobacco, paper, printing & media and metal products sub-sectors. Firms expect output to fall again in the three months to October (-30%).
- The share of firms citing orders or sales as a factor likely to limit output in the next three months rose relative to April, standing above historical norms (70%, from 66% in April; long-run average of 65%).
- The share of firms citing materials or components as a constraint fell from a near three-year high in April (21%, from 30%).
- Total new orders fell through the quarter at the fastest pace in six years (-24%, from -22% in April), reflecting declines in both domestic orders (-29%) and export orders (-16%). Manufacturers expect the total volume of new orders to decline in the three months to October, at a fast pace (-28%).
- Investment intentions for the year ahead are weak. Manufacturers expect to reduce investment in buildings (-43%, from -38% in April), plant & machinery (-43%, from -36%), product & process innovation (-22%, from -14%), and training & retraining (-20%, from -23%).
- The main constraint on investment was uncertainty about demand (cited by 52% of manufacturers, broadly in line with the long-run average), followed by inadequate net return (30%), and a shortage of internal finance (26%, the highest in six years).
- Average costs rose in the quarter to July at a rapid pace (+65%, from +54% in the three months to April, and the fastest since the three months to October 2022). Costs growth is expected to decelerate, but remain elevated, in the three months to October (+50%).
- Average domestic prices rose in the quarter to July, at an above average pace (+23%, from +16% in the three months to April), accompanied by a rise in average export prices (+8%, from +15% in April). Domestic prices are anticipated to rise again in the next three months (+11%, the weakest expectations since October 2024), whereas export prices are expected to fall (-8%).
- Stocks of raw materials were unchanged in the three months to July (+1%), whereas stocks of finished goods (-14%) and of work in progress (-11%) both declined.
- Manufacturers expect stocks of raw materials (-18%), of work in progress (-18%), and of finished goods (-17%) to all fall in the three months to October.
- Numbers employed fell in the quarter to July (-14%, from -19% in the three months to April). Manufacturers expect another fall in employment in the three months to October (-22%).
