Expected slowdown in manufacturing sector doesnt hold back prices

Demand for manufactured goods has remained steady but prices are set to rise in the next three months, even as output growth is expected to slacken, the CBI reports.

A balance of +8% of firms reported their order book levels were above normal, consistent with the healthy demand for manufactured goods seen over the course of this year. Export demand is also holding up reasonably well, with the balance on export order books (-4%) in line with the average since January and still significantly above its long term mean (-22%).

However, the balance of manufacturers saying prices will rise next quarter (+21%) is the joint-second highest since 1995, the CBI's November Industrial Trends survey reveals. The same figure as was recorded in March, it is slightly lower than May's 12-year high (+25%) and a return to the climate of strong price pressures that seemed to be easing off.

Twenty six per cent of firms foresee an increase in output in the coming quarter, but 17% expect a decline. The balance of +9% is the lowest for a year (November 2006, +5%), considerably lower than February's peak of +28%, but still above the levels of 2005.

All three manufacturing sub-sectors have seen a slowdown in expected output growth since the beginning of the year, but this has been less marked amongst producers of consumer goods. And this month a balance of +38% of these manufacturers also feel able to raise their prices, significantly higher than firms making capital or intermediate goods.

CBI Chief Economic Adviser Ian McCafferty said:

"Recent tightening of economic policy is starting to be felt and manufacturers are downgrading their expectations for future growth in their output.

"But despite this, firms are having to push up their prices to compensate for heavy cost burdens.

"Last month's quarterly survey recorded the highest expectation of input cost rises in 12 years. With oil at over $90 a barrel, up more than fifty per cent on a year ago, plus the pressure of other rising commodity costs, manufacturers operating on tight margins clearly feel they have little choice."

Notes:

1. The survey was conducted between 23 October and 14 November 2007. 510 manufacturers responded.

2. A balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease.

3. The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce.

The organisation is also the UK's official business representative in the European Union, which generates more than 50 per cent of regulation affecting British firms.

With offices across the UK as well as in London, Brussels, Washington and Beijing, the CBI coordinates British business representation around the world.