CBI survey shows glimmer of hope in UK manufacturing

The latest survey of manufacturing published yesterday by the CBI represents a glimmer of hope in the gloom, writes IPPR's Tony Dolphin.

After the recent run of data suggesting economic growth in the UK is anaemic at best, the latest survey of manufacturing published yesterday by the CBI represents a glimmer of hope in the gloom.

The August survey shows more manufacturers (31 per cent) expect output to increase in the next three months than expect it to fall (17 per cent). The net balance of 14 per cent is above the long-run average reading and suggests the levelling off in output seen in the first half of 2011 might prove temporary.

Orders – particularly export orders – improved significantly and are also above their average historic level. This suggests the effect on UK businesses of the turmoil in the eurozone and the wrangling in the US over the debt ceiling might not be as large as feared.

However, some caution is needed. This is just one survey. The purchasing managers’ survey for July showed a sharp fall in optimism and output expectations among manufacturers and it is not clear why the outlook for manufacturing should have improved so much in one month.

The CBI says the risks to the outlook:

“…have if anything increased, due to market volatility and the recalibration of growth worldwide.”

Furthermore, manufacturing now represents less than one-sixth of the output of the UK economy. What happens in the service sector matters more and that depends very much on developments within the UK.

Meanwhile, domestic demand remains subdued, retail sales in the UK have barely increased over the last year because households’ spending power is being squeezed by higher food and energy prices and modest wage increases (and there is more to come when gas and electricity prices rise in the autumn).

Any good news on the economy is welcome – but let’s not carried away by one survey. Only when there is a consistent stream of better news can we be sure that the current soft patch has passed.

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