Manufacturing output falls as skills worries hit highest levels since 1973

25 Oct 2022 12:07 PM

UK manufacturers reported a further fall in output in the three months to October, but expect production to pick up in the coming quarter, according to the CBI’s latest quarterly Industrial Trends Survey.

However, with costs growth remaining exceptionally strong and the share of firms citing worries about access to skilled labour reaching a 49-year high, business sentiment fell for a fourth consecutive quarter, and at the fastest rate since the early days of the covid pandemic.

The survey, based on the responses of 279 manufacturing firms, found:

• Output in the three months to October fell slightly, and at a similar pace as in the quarter to September (balance of -4% from -4%). However, firms expect output to increase slightly in the next three months (+7%). Output fell in 11 of 17 sub-sectors, with the overall decline driven largely by paper, printing & recorded media and metal manufacturing.
• The share of firms citing a shortage of skilled labour as a factor likely to constrain output over the next three months reached its highest level since October 1973 (49%, from 39% in the quarter to July). The proportion of firms citing materials/components availability as a constraint on output fell for the second successive quarter (54%, from 63% in the quarter to July and 71% in April, which was the highest reading since 1975).
• New orders fell in the quarter to October (balance of -8% compared to +11% in the quarter to July), reflecting a decline in domestic orders (-8% from +7%) and the quickest fall in export orders since the quarter to July 2020 (-18% from -2%). Manufacturers expect a similar contraction (-10%) in new orders over the next three months.
• Business sentiment fell for a fourth successive quarter, and at its fastest rate since April 2020 (balance of -48% from -21% in July).

Alpesh Paleja, CBI Lead Economist, said:

“It’s a tough time for manufacturers. Price pressures remain acute, availability of materials is still a big issue – and it is 49 years since manufacturing firms were this worried about being able to find workers with the skills they need. It’s really no surprise that sentiment has deteriorated further.

“Action to address the skills challenge is critical for the sector’s future prospects. Urgent reform to add flexibility to the Apprenticeship Levy would be an important first step for the new Prime Minister, which can rebuild confidence for manufacturers and restore momentum to their investment and growth ambitions.”

• Investment intentions for the year ahead were mixed, but remain positive for training & retraining (balance of +14% from +10%), for product and procession innovation (+7% from +10%) and for plant & machinery (+6% from +17%). Investment in buildings is expected to decline (-5% from -7%).
• Average costs growth remained exceptionally strong in the quarter to October (balance of +82%, unchanged from July but well above the long-term average of +16%). A similar rate of growth is expected in the next quarter (+82%).
• Average domestic price inflation also remained elevated in the quarter to October (balance of +50% versus +51% in July, above the long run average of +2%). Manufacturers expect a rapid rise in the next quarter (+46%)
• Average export price inflation eased in the three months to October (balance of +24% from +32%, above the long run average of -5%). Manufacturing firms expect a similar rate of growth in the next quarter (+28%).
• Numbers employed grew at their fastest rate since October 1973 (balance of +26% compared to +18% in the quarter to July). Firms expect numbers employed to rise further in the next quarter (+19%).