British manufacturing continues to struggle with weak demand and persistent price pressures, according to the latest industrial trends survey from the Confederation of British Industry (CBI). The February report paints a picture of a sector grappling with low confidence and elevated costs, despite some tentative signs of improvement in certain areas.
The monthly order book balance for manufacturers stood at -28 in February, a slight uptick from -30 in January, but still significantly below the long-run average of -14. This indicates that order books remain considerably depleted, with more firms reporting a decrease than an increase in orders. Cameron Martin, a senior economist at the CBI, noted that “many firms continue to report customers holding back amid low confidence and elevated cost pressures.”
Adding to the sector’s woes, factory output also declined over the three months to February, registering a balance of -14. While this represents an improvement from the -25 recorded in January, it confirms a continuing contraction in production. Manufacturers anticipate a broadly similar pace of decline in output over the coming three months, suggesting limited near-term prospects for recovery.
Perhaps more concerning is the continued upward pressure on prices. The CBI survey’s gauge of expected prices for the next three months stood at +26, only slightly down from +29 in January. This remains the highest reading since February 2023, when the UK was experiencing an energy price shock following Russia’s invasion of Ukraine. The persistence of high price expectations suggests that inflationary pressures within the manufacturing sector are proving difficult to contain, potentially impacting both businesses and consumers.
The findings arrive amidst a mixed economic landscape for the UK. While some recent surveys have indicated a modest increase in business optimism following the autumn budget, households continue to express “dismal” feelings about their finances. Companies are also reportedly cutting staff in response to rising cost pressures, creating a challenging environment for both employment and economic growth.
Manufacturing accounts for approximately 9% of the UK economy, and the current Labour government has identified the sector as a key priority for boosting long-term growth. In June of last year, the government unveiled a new industrial strategy, including a commitment to invest £2 billion over the next four years to reduce energy prices for manufacturing businesses. However, the implementation of this scheme is not scheduled until 2027.
The CBI is urging the government to accelerate the rollout of this energy price reduction scheme, arguing that it could provide much-needed relief to manufacturers facing punitive energy costs. “Tackling punitive energy costs will strengthen competitiveness, ease cost of living pressures, and help boost demand across the economy,” the CBI stated.
The struggles within the manufacturing sector are echoed by concerns within the broader small business community. The Federation of Small Businesses (FSB) reports that its members are facing “unparalleled cost pressures” that could lead to a collapse in viability. Tina McKenzie, the policy chair at the FSB, has written to Chancellor Rachel Reeves requesting measures to mitigate the impact of rising bills due in April.
The combination of weak orders, declining output, and persistent price pressures presents a significant challenge for British manufacturers. While the slight improvements observed in January and February offer a glimmer of hope, the underlying conditions remain unfavorable. The delayed implementation of the government’s energy support package further exacerbates the situation, leaving manufacturers vulnerable to ongoing cost pressures and uncertain demand.
The current situation underscores the delicate balance facing the UK economy. While broader economic indicators may show signs of stabilization, the struggles within key sectors like manufacturing highlight the persistent challenges to sustainable growth. The effectiveness of government policies aimed at supporting the sector, and the broader economic environment, will be crucial in determining whether British manufacturing can regain momentum in the coming months.
The lack of significant improvement in the order book balance, despite the slight easing in output decline, suggests that the fundamental issues of weak demand and customer hesitancy remain unresolved. This points to a broader issue of consumer and business confidence, which may require more comprehensive policy interventions to address. The continued expectation of price increases also complicates the picture, potentially offsetting any benefits from increased production or government support.
Looking ahead, the trajectory of the UK manufacturing sector will likely be heavily influenced by global economic conditions, geopolitical factors, and the effectiveness of domestic policies. The ongoing situation in Ukraine, as evidenced by the recent unsuccessful peace talks, continues to contribute to global economic uncertainty and inflationary pressures, impacting supply chains and energy prices. The ability of the UK government to provide timely and effective support to manufacturers, and to foster a more stable and predictable economic environment, will be critical in navigating these challenges.
