Orders Rebound But Manufacturers Predict a Flat Start to 2013

In the CBI's final Industrial Trends Survey of the year, UK manufacturers reported an increase in their total order books for the third month running but remained cautious in their expectations for output at the start of the new year.
Of the 392 manufacturers responding to the latest monthly survey, 18% reported that total order books were above normal and 30% that they were below. The resulting balance of -12% is 9 points higher than November (-21%) and a little higher than the long-run average (-17%) for the first time since September (-8%).
The balance of manufacturers reporting that export orders were above normal was -11%, also above the long-run average (-21%). This meant that last month's rebound held (-12%) but there was no further improvement in export order books.
Looking ahead manufacturers expect output to be flat for the next three months (0%), an improvement on last month (-9%) but still below the robust growth that was anticipated back in October (12%). Investment goods sectors - especially mechanical engineering and aerospace - are the main drivers of growth, but half of the twelve main manufacturing sub-sectors expect output to fall, including chemicals and electrical engineering.
Meanwhile expectations of output price inflation over the next three months picked by 9 points to 17%, with all but two of the eleven manufacturing sectors reporting an increase. This is the highest anticipated rate of inflation since March (24%). The food, drink & tobacco sector is the largest driver of the increased inflation expectations by some distance.
With prospects for output weak, firms have kept the level of stocks low for the third-consecutive quarter (6%), well below the long run average (14%).
Anna Leach, CBI Head of Economic Analysis, said: "December's survey reports a welcome improvement in manufacturers' order books and their expectations for output. Even so, they remain hesitant in predicting further output growth and are keeping stock levels low. Conditions in the sector and the wider economy are likely to remain fragile until global conditions improve over the course of 2013."