CBI: Order books at two-year high, but prices expected to rise

21 Feb 2017 12:44 PM

Demand for UK-manufactured goods strengthened in the three months to February, with total order books improving further, according to the CBI's latest Industrial Trends Survey.

The survey of 471 firms found that total orders reached a two-year high, with the strengthening in demand led by the mechanical engineering and metal products sectors. Export orders remained stable, and above the long-run average.

Output growth remained robust in the three months to February and is expected to increase at a faster pace over the coming quarter, with expectations at their highest since September 2013.

Firms expect prices to rise strongly over the next three months, with expectations at their firmest since April 2011, as Sterling’s depreciation continues to increase the cost of raw materials.

Rain Newton-Smith, CBI Chief Economist, said:

“Stronger demand and production is good news for UK manufacturers, though the weaker pound continues to push up input costs and this is now feeding through to output price inflation expectations.

“With cost pressures building, businesses will be looking to the Budget for relief from business rates, specifically bringing forward the adjustment from RPI to CPI.

“Over the longer term, investment in education and innovation as part of the Government’s industrial strategy will really need to deliver in the face of increasing political headwinds.”

Key findings:

• 27% of businesses reported total orders to be above normal and 19% said orders were below normal, giving a balance of +8%, the highest since February 2015 (+10%)
• 19% of businesses reported export orders to be above normal and 29% below, resulting in a balance of -10%
• 35% of businesses reported a rise in output volumes, and 20% a fall, giving a rounded balance of +16%
• Output growth is expected to grow faster over the next three months, with 43% of companies expecting a rise and 10% expecting a fall, leaving a balance of +33%, the highest since September 2013 (+33%)
• Average output prices are expected to increase over the next quarter, with 38% of companies expecting to raise prices and 6% expecting to cut prices, giving a balance of +32% - the highest since April 2011 (+36%)
• 16% of businesses reported stocks as more than adequate to meet expected demand and 11% less than adequate, leaving a balance of +5%.