UK manufacturers see output falls slowing

The UKs manufacturing firms expect the pace of decline in output to slow markedly in the next quarter, suggesting they believe the toughest phase of the recession may be behind them.

In the CBIs monthly Industrial Trends survey for May, 17% of the 575 firms surveyed said they expect the volume of output to increase over the next three months, against 34% who anticipate a fall. The resulting balance of -17% is a marked improvement on the previous month (a balance of 32%), and takes the measure back to where it was before the collapse of Lehman Brothers last September (a balance of -16%).
 
Ian McCafferty, the CBIs Chief Economic Adviser, said: After scaling back production very sharply at the beginning of the year, manufacturers can see a glimmer at the end of the tunnel. They still expect manufacturing activity to fall, but at a much slower rate over the next few months. However, this was another tough month for firms, with orders at home and abroad still at very weak levels. With stock levels high relative to expected demand, manufacturers are likely to remain focused on running down their stocks further.
 
Demand for UK-made goods remains weak with 10% of firms reporting above normal total order books in May, while 66% said they were below normal. The resulting balance of -56% is broadly unchanged from each of the previous three months. Export order books remain below par this month, despite the relative weakness of Sterling. 12% of firms said they were above normal, 58% said they were below normal, giving a balance of -46%, which is in line with the weak export demand seen in previous months (a balance of -34% in April and -51% in March).
 
A net balance of 13% of firms expect domestic prices to fall over the next quarter, although at a slower rate than in April (-20%). Despite firms aggressively running down their stocks, levels remain high with a balance of 30% reporting stocks more than adequate to meeting demand, which was not far off Marchs twenty eight year high (a balance of 31%).