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The CBI's Industrial Trends survey confirms the manufacturing sector continues to enjoy strong expansion, but the impressive growth is seen slowing over coming months.
The CBI Industrial Trends Survey number read at 10 for February, down from 14 in January and below analyst expectations for 12.
The miss on expectations will have put a slight dampener on sentiment towards Sterling amidst heightened speculation about the direction of the UK economy in light of Brexit.
While expectations were disappointed, it must be stressed that UK manufacturing remains in something of a purple patch with the CBI reporting manufacturing order books and export order books remained well above their long run averages in the three months to February, "despite weakening somewhat".
According to the survey of 397 manufacturers, output grew at a healthy pace in the three months to February. Growth was broad-based with output growing in 16 out of 17 sub-sectors with growth predominantly driven by Food, Drink and Tobacco, and Motor Vehicle and Transport Equipment sub-sectors.
Respondents anticipate that output growth will slow a little over the next three months, broadly matching the pace seen in September and October last year.
Expectations for output price inflation weakened from last month’s 34 year high, but remain above the historical average.
Marshall Gittler, an analyst with ACLS Global notes that prices "are going up up up while sales are starting to go down" which could be a worry. Last month saw the domestic prices balance rise to +40, its highest level since 1984.
"Of course the survey is quite variable – it went from -2 in October to +17 in November – so this isn’t yet a trend. But it reminds me of what happened last week in the US with the Fed surveys showing higher selling prices while industrial production fell month-on-month. Could this be the start of stagflation?" asks Gittler.
Meanwhile, the CBI reports stocks were considered to be above adequate levels, but below the long-run average.
Looking at growth in the economy more broadly, momentum was tepid for most of 2017 and the CBI expect similarly subdued growth to persist further ahead.
Demand in the manufacturing sector should continue to be buoyed by the lower pound and buoyant global economy. But we expect consumer-facing companies and retailers to continue to struggle while consumer incomes remain under pressure from higher inflation.
“Manufacturers are benefitting from the health of the global market place. But companies still struggle to find the workers they need to grow their business. To ensure there’s a strong pipeline of people with the technical skills needed, we need young people to receive further education and careers advice built upon the needs of employers," says Tom Crotty, Group Director of Ineos and Chair of CBI Manufacturing Council.
Anna Leach, CBI Head of Economic Intelligence, says businesses remain keen for further clarification on Brexit:
“This month saw another strong showing from UK manufacturers. Although order books weren’t quite as buoyant as they were last month, demand remains strong and output grew briskly.
“With the Brexit negotiations reaching a critical juncture, many businesses are concerned about future barriers to trade and are looking for clarity over the future relationship with the EU. Remaining in a comprehensive customs union will help alleviate some of those fears and give firms the confidence to invest and grow.”
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