UK manufacturers' orders fall at fastest pace in six years - CBI

UK manufacturers reported the sharpest fall in new orders in six years in July, as rising costs and weak demand continued to squeeze margins, according to the latest quarterly survey from the Confederation of British Industry.

The CBI's industrial trends survey found total new orders fell at the fastest pace since 2020, with a weighted balance of minus 24%, worsening from minus 22% in April. The decline reflected weaker domestic orders, down to minus 29% from minus 23%, and export orders, which fell to minus 16% from minus 13%.

Manufacturing output also declined in the three months to July, although at a slower pace than in the previous quarter, with a balance of minus 24% compared with minus 33%.

Output fell across 13 of the 17 manufacturing subsectors, led by food, drink & tobacco, paper, printing & media and metal products. Only aerospace and motor vehicles & transport equipment reported higher output.

Manufacturers expect both output and orders to weaken further over the next three months.

Average costs rose at the fastest pace since the three months to October 2022, with a balance of plus 65%, up from plus 54% in April. Although domestic and export selling prices also increased, the CBI said prices failed to keep pace with costs, leaving profitability under pressure.

Business sentiment continued to deteriorate, with optimism about the general business situation falling to minus 36% and export prospects weakening to minus 23%.

Ben Jones, senior lead economist at the CBI, said: "We're seeing manufacturers being squeezed from both sides. Costs continue to climb while weak demand limits their ability to raise prices – leaving firms to absorb the pressure through shrinking margins, weaker investment and further cuts to employment."

Investment intentions also remained subdued.

Manufacturers expect to cut spending on buildings, plant and machinery, innovation, and training over the coming year, citing uncertainty over demand, inadequate returns and a shortage of internal finance. The proportion of firms citing internal finance as a constraint on investment rose to its highest level in six years.

Employment continued to decline in the quarter, with firms expecting headcount reductions to deepen over the next three months.

Jones called on the government to prioritise restoring industrial competitiveness, arguing that reducing industrial electricity costs, which he said remain around 45% above the G7 median, would help manufacturers invest and create jobs.

The survey was based on responses from 338 manufacturing companies.

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