UK: CBI Industrial Trends Survey points to a slight softening ahead – Capital Economics

UK’s February CBI Industrial Trends Survey suggests that the growth of manufacturing output may have slowed a bit at the start of the year, but the big picture remains that the sector is still performing well by recent standards, explains Finn McLaughlin, Assistant Economist at Capital Economics.

Key Quotes

“The decline in the output expectations balance – which has the best relationship with the official manufacturing data – from +24 in January to +16 in February points to a slight slowdown in manufacturing output growth ahead.”

“Indeed, on the basis of past form, the three-month average of the balance points to a slowdown in quarterly manufacturing output growth from its recent rate of 1.3% to around 1%. That said, we wouldn’t read too much into this, as the survey balance has been a rather poor guide to the official figures of late.”

“Meanwhile, although the headline total orders balance also fell a touch from +14 in January to +10 in February (in line with the consensus expectation), it remains well above its long run average of -19. What’s more, despite February’s decline pushing the three-month average of the balance down from +16 to +14 on the month, it remains elevated at levels last seen in 1988.”

“Admittedly, the slight decline in the total orders balance appears to have been driven by a softening of foreign demand, with the export orders balance falling from +19 to +10 – raising concern that the boost from sterling’s drop is fading. But the balance remains elevated by past standards, suggesting that sterling’s slide, alongside solid global growth is still providing ample support for exporters. Finally, while expectations for output prices have cooled after January’s sharp rise, they remain high by past standards.”

“Overall, then, February’s CBI survey points to a slight slowdown in manufacturing growth, but given the volatile nature of the survey, we would caution against reading too much into a single-month’s data. Indeed, we expect sector to put in a solid performance over Q1 as a whole.”