-Export order books improved
-Motor vehicle and transport equipment output expected to rise
-UK manufacturing may bottom in quarter four -Barclays

UK manufacturers expected to reduce output over the next three months, while overall orders were relatively flat, according to the Confederation of British Industry's (CBI) November survey data.

Of the 409 manufacturers responding to the latest monthly Industrial Trends Survey only a net -9% of those companies expected to raise their output over the next three months.

That was the worst reading this year and the second lowest since July 2009, as well as below the long run average reading of +6%.

The motor vehicle and transport equipment sub-sectors were the only ones expecting to increase output.

The total order book (-21%) remained broadly flat this month and only slightly under the long-run average (-17%), although there was an upswing in export orders.

The consensus estimate for total orders was for a reading of -20% after last month's -23%.

The export order book (-12%) moved back above its long-run average (-21%), rebounding from last month's low (-22%). That upturn was driven predominantly by the mechanical engineering, food, drink & tobacco and motor vehicles and transport equipment sub-sectors. Chemicals - which represents the largest export sector in the survey - reported a sharp drop.

Stock levels remained stable after last month's sharp fall at +5%.

An overall balance of +8% of firms expected output prices to increase over the next three months, little changed from October (+7%).

The food, drink & tobacco sector anticipates a sharp rise in output prices over the next three months (+42% balance), but this is tempered by modest inflation expectations in other sectors.

Economists weigh in

Commenting on the data, Anna Leach, CBI Head of Economic Analysis, said:

"Overseas demand has improved in this month's survey, but this has not been enough to lift overall demand and support the modest expectations for growth in production levels found in the previous survey.

"Business confidence continues to be undermined by uncertainty over events in Europe and the fast approaching US fiscal cliff. However, we expect UK growth to pick-up somewhat in 2013 as this uncertainty gradually subsides and global growth increases."

For their part, economists at Barclays Research voiced the following opinion: "We expect output to slide further in the fourth quarter, owing to the lacklustre domestic and European outlook. The November CBI survey supports this view: while the survey can be very volatile on a month-to-month basis, the broad picture of weakening activity in recent months is supported by other evidence, such as the manufacturing PMI survey.

"However, today's stronger-than-expected 'flash' euro area manufacturing sector purchasing managers' index (PMI) suggests that the broader European picture may be stabilising. This strengthens the hope that the UK manufacturing sector will bottom out in the fourth quarter."

AB

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