UK industrial orders better than expected but still weak – CBI

Posted on November 22, 2016

British manufacturers’ order books were less unhealthy than economists predicted in November, but the weak pound didn’t provide any boost to exporters, according to the CBI.

The business lobby group’s monthly industrial trends survey gave a total order book reading of -3. The number was an improvement after a particularly bad drop last month and was better than forecasts of -8, but still represented the 19th straight month of negative readings.

The number represents the difference between the percentage of firms reporting higher than normal orders and the percentage reporting lower than normal orders.

Although the UK economy has so far confounded pessimistic warnings about the impact of the vote to leave the EU, better than expected economic growth has been driven by the country’s powerhouse services sector, and manufacturing output in the UK has yet to recover to the levels seen before the financial crisis.

The survey, which questioned 430 manufacturers, also showed an increase in the number of companies reporting weaker than normal exports, despite the weakness of the pound theoretically making British products cheaper for foreign buyers. The export order balance declined to -11, from last month’s -6.

However, respondents were relatively optimistic about the outlook for the next three months, with 38 per cent of companies predicting growth and only 15 per cent predicting a decline. The balance of 24 is the highest since February 2015.

Rain Newton-Smith, CBI chief economist, said:

It’s good to see manufacturers’ overall order books at healthy levels, and the outlook for output growth remaining robust as we head into Christmas. But the weak pound is beginning to make its mark, and prices are expected to rise, especially in the food and drink sector. On the flip side though, export orders remain above average.

However, Pantheon Macroeconomics’ Samuel Tombs stressed that the monthly gain does not mean the industry is improving in the long term:

The sharp improvement in the CBI’s total orders balance should not be mistaken for an improving trend. The balance is not seasonally adjusted and it is derived from manufacturers reporting whether orders are higher or lower than “normal”. This leads to pronounced swings at certain times of the year. The orders balance nearly always recovers in November after plunging in October; its has been below its 12-month rolling average in 35 of the last 38 Octobers. At -3 in November, the orders balance is immaterially different to the -4 and -5 readings seen between July and September. On past form, the balance is consistent with year-over-year growth in manufacturing output of about 1%, nothing to write home about.

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