Optimism Amongst UK Manufacturers in Strongest Bounce Since 1973

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Manufacturers are increasingly optimistic about the future says the Confederation of British Industry (CBI), whose latest monthly survey of the sector reported a surge in optimism and investment intentions.

The April 2021 CBI Industrial Trends Survey shows optimism in the three months to April improved at its quickest pace since April 1973.

The business optimism balance leapt to a record-high +38 in the second quarter, from -22 in the first quarter.

Although sentiment towards the outlook was reported to have risen sharply, the CBI's total orders balance fell to -8 in April, from -5 in March, below the consensus expectation for +2.

"The small drop in the total orders balance provides no cause for concern; it is not seasonally adjusted and has undershot its six-month centred average by two-points in April over the last 40 years," says Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics.

Investment intentions meanwhile saw a strong, broad-based rebound at +18 from -27, its highest level since the third quarter of 1997.

"It’s hugely welcome to see manufacturers planning to invest more in their businesses following what has been an extraordinarily difficult period for the sector. After all, a more productive manufacturing sector can be an engine for the UK’s economic renewal and long-term growth," says Tom Crotty, Group Director at INEOS.

"Manufacturers are much more optimistic about the future, now that Brexit is largely in their rear-view mirror and world trade is rebounding," says Tombs.

The developments come on the same day the ONS released data showing a surge in spending by consumers following the second major stage of unlocking the economy on April 12, indicating a strong economic rebound is underway.

The price expectations balance of the CBI's survey rose to +26 in April, from +20 in March, a development Tombs says shows manufacturers are feeling emboldened to pass on higher raw material costs, and some Brexit-related costs, to customers.

"That said, we continue to think the impact on CPI inflation will be modest, as margins for many retail goods have scope to decline," adds Tombs.

Economists say the UK economy will undergo a strong economic rebound in the second quarter of 2021 as further restrictions are loosened, with the vaccination programme providing confidence that further lockdowns will not be necessary.

"The strong rebound in activity since England reopened non-essential retail and outdoor hospitality in mid-April adds credence to our above-consensus forecast for GDP growth of 7.2% this year," says Andrew Goodwin, an economist at Oxford Economics.