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UK manufacturing growth slows with further troubles ahead

·Business Reporter, Yahoo Finance UK
·3-min read
Workers at a UK manufacturing company
UK manufacturing: Factory bosses said that export order books fell back to a normal level this month, but were still above their long-term averages. Photo: Press Association

Growth in the UK manufacturing sector slowed last month as order books softened and demand eased, a closely-watching survey found.

According to the CBI Industry Trends Survey on Tuesday, manufacturing output growth slowed slightly in the three months to June, and is expected to ease further in the three months ahead.

Output growth balance stood at 25 during the period, compared to 20 in May. The CBI survey was conducted between 25 May and 13 June and received 212 responses.

Output increased in 12 out of 17 sectors the survey tracks during the quarter, led by the motor vehicles and aerospace sub-sectors. However, the food, drink & tobacco sub-sector shrank for the first time in just over a year.

Factory bosses said that export order books fell back to a normal level this month, but were still above their long-term averages. Total order books came in at 18, down from May’s 26, and below consensus for 22.

Read more: FTSE presses ahead amid biggest UK rail strike in 30 years

“While manufacturing output is still being supported by a backlog of orders, growth appears to be softening. Stocks of finished goods are now seen as broadly adequate and we may be seeing the first signs that weaker activity is beginning to slow the pace of price increases in the sector,” Anna Leach, deputy chief economist at the CBI, said.

"Manufacturers continue to report a range of challenges, including significant cost pressures, shipping delays, shortages of key inputs and recruitment difficulties. All of these trends are weighing on confidence."

Price expectations fell to a nine-month low, with fewer manufacturers planning to raise their prices than earlier this year.

A net balance of 58% of firms expected domestic price growth for the three months ahead, down from 75% in May and a survey record of +80% in March 2022.

This was the weakest expectations for selling price inflation since September 2021 (although significantly above the long-run average).

Watch: Average UK food shop rises by £380 a year

Stocks of finished goods were seen as adequate in June, after being reported as inadequate in all but one month during the previous 13 months (+2% from -15% in May).

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The fall in the net balance of manufacturers planning to increase prices is an encouraging sign that the rate of increase in consumer goods prices is about to slow, and will ensure that the headline rate of consumer price inflation peaks later this year below the 11% rate currently forecast by the Monetary Policy Committee (MPC).

"Producers appear to be accepting a squeeze on their margins now that growth in demand has slowed, and stocks of finished goods are reported by a slight majority to be more than adequate to meet demand.

Watch: How does inflation affect interest rates?

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