Dianne Sharp: Slugging export market has taken the steam out of the recovery

Global uncertainty is hitting exports, says regional director of the CBI Dianne Sharp

Dianne Sharp, the new regional director for the CBI
Dianne Sharp, the new regional director for the CBI

The recovery in British manufacturing continued in the three months to October, but the pace of growth slowed as new export orders declined, according to the latest CBI Quarterly Industrial Trends Survey and reflects the feedback that I have heard around the region.

The survey of 448 firms reported sustained above average growth in orders and output volumes. Yet the pace of growth for both in the last three months was the slowest for a year. The rate of expansion in domestic new orders eased a little, and export orders experienced their first decline in a year and a half. Despite this, numbers employed in the manufacturing sector continued to grow at a strong pace.

Firms anticipate continued growth for the next three months, but there are reduced expectations for total new orders and exports growth.

Manufacturing output (which accounts for 10% of GDP) edged up by just 0.1% in August, leaving output over the July-to-August period only 0.3% higher than in Q2 as a whole. Indeed three-month on three-month growth — which smooths out monthly volatility — showed flat manufacturing output in the three months to August.

After expanding by 1.7% in 2013, GDP grew at an impressive pace in the first half of this year – by 0.7% in 2014 Q1and 0.9% in 2014 Q2. Data since then suggests that growth is likely to remain robust in Q3, but that it will still be largely concentrated in the service sector, with manufacturing lagging behind.

Indeed, the service sector has been the main driver of the UK’s recovery to date: despite GDP surpassing its pre-crisis peak in 2013 Q3, services remains the only sector to have exceeded its pre-downturn peak. By comparison, output in the production and construction industries remain around 9% below their respective peaks, with manufacturing output alone remaining 4.4% below.

Looking to the year ahead, manufacturers’ plans for investment in buildings slipped to their weakest in a year, but in plant and machinery, and product and process innovation, they stayed well above average.

The proportion of firms concerned that political and economic conditions abroad may limit export orders remained above its long-run average for the second successive quarterly survey.

It’s disappointing that a sluggish exports market has taken some of the steam out of manufacturing growth, which was going from strength to strength throughout most of this year.

Dianne Sharp, Regional director - North East, CBI

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