Cost & pricing pressure ease in UK manufacturing in Nov-Jan: CBI

Cost and pricing pressures in UK manufacturing remain high, but shows signs of easing, according to the Confederation of British Industry’s (CBI) latest Industrial Trends survey. In the quarter to January, average unit costs grew at the slowest pace since April 2021, while domestic selling price inflation was the slowest since July 2021. But both remained far above their long-run averages.

Manufacturers reported stable output volumes in the quarter to January, following a modest decline in the quarter to December. New orders were flat, while the volume of total order books fell further below normal, suggesting that output has been supported in part by manufacturers tackling backlogs of work. Manufacturers expect new orders and output volumes to increase in the next quarter, but the share of firms reporting that orders or sales would constrain output nonetheless reached its highest since April 2021.

Business sentiment fell for the fifth consecutive quarter, but at a much slower rate than in the three months to October (balance of -5 per cent, from -48 per cent). Export optimism also fell, but less quickly than in October, when it dropped at the fastest pace in two years (-22 per cent, from -31 per cent), the survey, based on the responses of 321 manufacturing firms, found.

Cost and pricing pressures in UK manufacturing remain high, but shows signs of easing, according to the CBI’s latest Industrial Trends survey. In the quarter to January, average unit costs grew at the slowest pace since April 2021, while domestic selling price inflation was the slowest since July 2021. But both remained far above their long-run averages.

Output volumes were stable in the quarter to January, after falling in the three months to December (weighted balance of -1 per cent from -9 per cent). Firms expect volumes to increase briskly in the next three months (+19 per cent).

Demand-side factors were seen as more likely to limit output in the next three months (57 per cent of respondents cited orders or sales as a likely constraint, from 43 per cent in October; average of 71 per cent). Supply-side constraints remain historically significant but have eased: shortages of skilled labour (38 per cent, from 49 per cent; average of 16 per cent); shortages of materials/components (44 per cent, from 54 per cent; average of 11 per cent).

Total new orders were broadly stable in the quarter to January (balance of -3 per cent, from -8 per cent). However, the volume of total order books fell further below normal (balance of -17 per cent, from -6 per cent in October). Manufacturers expect new orders to rise over the next three months (+9 per cent).

Average costs growth remained exceptionally strong in the quarter to January, but nonetheless eased, with costs rising at the slowest pace since April 2021 (balance of +64 per cent, from +82 per cent in October; average of +17 per cent). Cost growth is expected to slow further in the quarter to April (+53 per cent).

Average domestic selling price inflation also eased but remained elevated in the quarter to January (balance of +37 per cent, from +50 per cent in October; vs average of +2 per cent). Domestic price inflation is expected to remain elevated over the next three months (+41 per cent), the survey found.

Numbers employed continued to rise in the three months to January, albeit at a slower pace (+14 per cent, from +26 per cent in October). Firms expect headcount to rise further in the next three months (+24 per cent).

Investment intentions for the year ahead were mixed. Manufacturers expect to raise investment in training and retraining (+20 per cent, from +14 per cent), plant and machinery (+8 per cent, from +6 per cent) and product and process innovation (+6 per cent, from +7 per cent).

Anna Leach, CBI deputy chief economist, said: “Mixed conditions are apparent in the manufacturing sector this month. Global supply chain pressures, labour shortages and energy costs are easing, enabling unit cost growth to ease back from record highs.

“But there are signs that demand is easing too, with order books weakening sharply, spare capacity in the manufacturing sector rising and the share of firms citing the strength of sales or orders as a potential constraint on output rising to its highest in almost two years.”

Fibre2Fashion News Desk (KD)