UK manufacturers in record numbers reported a fall in output volumes in the three months to July. But there are tentative signs of optimism returning, with companies expecting output to grow in the next three months, for the first time since the Covid-19 crisis struck.
The findings are from the latest CBI quarterly Industrial Trends survey, based on responses from 356 manufacturing firms.
The survey found business sentiment had stabilised – asked about optimism regarding the current business situation, the balance of positive minus negative responses was only -1%, compared with -87% in the quarter to April.
On total orders, the balance reporting a fall or below normal outweighed those reporting an increase or above normal by 60 percentage points, with domestic and export orders affected roughly equally. But a positive balance of 9% expected overall orders, and 11% domestic orders, to begin to pick up in the next three months.
A balance of 51% expected to cut investment in buildings in the next year, with a balance of 40% expecting reduced investment in plant and equipment. Expectations for investment in product and process innovation, however, remained flat (+3%).
Uncertainty about demand was cited as a factor limiting investment by 76%, while 35% cited an inability to raise external finance as a factor, compared with 43% citing internal financial shortages.
A balance of 38% expected the number of staff employed to reduce in the next three months.
CBI chief economist Rain Newton-Smith said: “Manufacturers continue to face extreme hardship due to the COVID-19 crisis. There are tentative signs of gradual recovery on the horizon, but demand still remains deeply depressed. Firms remain very concerned about their financial situation and their capacity to invest. It is crucial for the government to consider how it can continue to support viable firms through this crisis.”
The latest Manufacturing Barometer survey of small and medium manufacturers also found signs the sector is beginning to bounce back. The survey, conducted by South West Manufacturing Advisory Service (SWMAS) and the Manufacturing Growth Programme, found that 76% of respondents had seen a drop in sales in the last six months, with 48% predicting the decrease would continue between now and the end of the year. However, in a sign of returning optimism, 40% expected future sales to increase, up from 9% in April.
Over a third (39%) described their status as “static” or “growing” against 59% who said they were “surviving” or “recovering”.
The survey found that 16% of respondents had taken steps above and beyond support available from the government to protect cashflow, and 30% identified a need for more financial help in future. More than a quarter had made redundancies, and 36% expected further cuts to their workforce in the next six months.
Only 32% of respondents had taken advantage of the government’s Coronavirus Business Interruption Loan Scheme.