Factories expect to cut output as growth stalls

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British factories are poised to cut production, adding to expectations that economic growth is faltering in the current quarter.

British factories are poised to cut production, adding to expectations that economic growth is faltering in the current quarter after a strong rebound.

Overall orders have been flat this month, while manufacturers are braced to reduce output over the next three months, according to the CBI’s latest industrial trends research.

Of the 409 companies surveyed, only 19pc expected to increase their output volumes over the next three months, while 28pc expected to reduce output. The resulting negative balance of -9pc was the weakest seen this year.

The light on the horizon was exports, as the reading for the export order book came in at -12pc, taking it above its long-run average of -21pc and recovering much of the ground lost in October.

However, the improvement overseas was not enough to lift overall demand, meaning that manufacturers’ expectations for output were disappointed. The anticipated drop in production was broad-based, with motor vehicles and transport equipment the only major sector predicting improvement.

The poll came after the UK’s gross domestic product (GDP) grew 1pc in the three months to the end of September, boosted by one-off factors such as the impact of Olympic ticket sales and an extra bank holiday earlier in the year.

Analysts do not expect that pace of growth to be sustained in the current quarter, with some concerned the economy could start contracting once again.

Howard Archer, UK economist at IHS Global Insight, said: “Although the total orders balance actually edged up in November (Xetra: A0Z24E - news) compared to October, the CBI survey does little to ease fears that the economy could suffer a renewed GDP dip in the fourth quarter.”

Once 2012 is over, the outlook improves. Anna Leach, the CBI’s head of economic analysis, said: “Business confidence continues to be undermined by uncertainty over events in Europe (Chicago Options: ^REURUSD - news) and the fast approaching US fiscal cliff . However, we expect UK growth to pick up somewhat in 2013 as this uncertainty gradually subsides and global growth increases.”

The survey also showed that food, drink and tobacco producers expect to raise prices rapidly, thought to be due to recent spikes in global food costs.