British Manufacturers Readying to Increase Output

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A new survey of British manufacturers reveals that companies are readying to boost output in the coming months, fueled by increasing confidence.

The CBI's quarterly Industrial Trends survey showed that sentiment within the manufacturing sector improved in April and that output expectations were the strongest for six months.

Output volumes were broadly stable in the three months to April, following strong declines in output over the first quarter of 2024.

"The manufacturing sector is gradually turning a corner," says Rob Wood, Chief UK Economist at Pantheon Macroeconomics. "Declining uncertainty about the economic outlook and slightly lower borrowing costs have helped to lift spirits."

Above: Business optimism has increased. Image: CBI.

Business sentiment rose in the quarter to April, having been broadly unchanged in the three months to January (balance of +9%, from -3% in January). Export optimism for the year ahead also rose moderately (+6%, from -20%).

"A softer labour market has eased concerns that skills and labour could constrain output and orders. Concerns about access to materials and components are also at their lowest since January 2020. These brighter conditions are supporting a more stable picture for investment over the year ahead," says Anna Leach, CBI Deputy Chief Economist.

The sector looks to be turning a corner as both sentiment indicators had shown declining optimism in all but one quarter throughout 2022-23. Manufacturers expect output to rise over the next three months, with expectations the strongest since October 2023.

Above: Returning confidence results in increased investment. Image: CBI.

Average cost growth remained elevated compared to historical norms, with costs also expected to increase at a strong pace in the quarter to July.

Domestic and export price inflation are expected to pick up slightly in the next three months.

The CBI said investment intentions for the year ahead improved as businesses report fading uncertainty regarding customer demand and diminishing concerns over the cost of financing.

Manufacturers expect investment in buildings and plant & machinery to be stable over the year ahead, which marks a shift from the picture in January, when investment intentions sank to their weakest for three years.

Moreover, spending on product & process innovation is now expected to increase over the year ahead.

"With the recovery still to fully pick up steam, we need to see everyone laser focused on delivering the big reforms that will help manufacturers grow and invest. Full capital expensing, with the potential to extend this to leased and rented assets, can be a game changer that unlocks the incredible power of our manufacturing sector and drives economic growth," says Leach.