Manufacturing fall is fastest since pandemic, CBI survey shows

Manufacturing output is falling at its fastest pace since the start of the pandemic, a new survey of businesses has found.

The fall was mainly driven by a decline in production of food, drink, tobacco, paper and the mechanical engineering sectors, according to the poll of 220 manufacturers by the CBI covering the three months to December.

Order books are not as full as usual and stocks of finished goods are insufficient, business leaders said, as they warned that the prices of their goods and services will rise again in the next three months.

However the pace of price rises will slow from record highs earlier this year. Inflation fell from 11.1 per cent in October, a 41-year high, to 10.7 per cent in November as price growth in petrol and diesel slowed.

Output volumes in the manufacturing sector fell to a balance of minus 9 per cent on the sentiment survey, down from 18 per cent in the three months to November, according to the CBI, which represents businesses.

Survey responses are weighted based on a company’s market share and the extent to which they said a metric had risen or fallen to produce an index level between -100 and 100, where 0 separates contraction from growth.

The volume of goods and services produced fell in 11 out of 17 sectors, adding to evidence that the UK is entering a recession this winter.

Inflation in selling prices is expected to rise in the next three months, with a reading of 52 per cent on the index, up from 47 per cent in the three months to November.

Separate research by S&P Global/CIPS shows that factories produced less, exported less, employed fewer people and saw intakes of new work shrink last month.

The overall purchasing managers’ index improved slightly to 46.5 from October’s two-and-a-half-year low of 46.2. A reading below 50 constitutes a reduction in activity.

Anna Leach, deputy chief economist at the CBI, said: “The corrosive effect of higher inflation on demand is increasingly clear, as manufacturing output contracted at the fastest pace in two years over the last quarter. While some global price pressures have eased in recent months, cost and price inflation will likely remain very high in the near term, with rising energy bills a key concern for manufacturers.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “The outlook for the next year remains grim. Demand for industrial goods likely will be hit again in 2023, as real incomes are squeezed by the watering down of government support for energy bills and higher unemployment, as businesses are forced to consolidate costs.”