Recovery setback as manufacturers see amount of orders fall

A balance of minus 17 per cent of manufacturers said order books were below normal levels in May, according to the CBI Industrial Trends survey, compared to a balance of minus 8 per cent last month.

The worsening level of orders hit manufacturers’ confidence in the month as expectations for future growth also weakened, with a balance of minus 3 per cent predicting no change in the next three months.

Elsewhere, a balance of minus 12 per cent of companies reported lower export orders, compared to minus 10 per cent last month, but the CBI said this remained better than the long-run average.

Ian McCafferty, CBI chief economic adviser, said: “Domestic demand for manufacturers’ goods has eased, leading to an expectation amongst firms that growth in production will slow sharply over the coming quarter.”

But Mr McCafferty added: “Export order books, however, are holding up, as UK exporters start to make inroads into high-growth markets. Nevertheless, if the crisis in the eurozone continues, it is bound to have a dampening effect on sentiment in coming months.”

The survey also showed a balance of 12 per cent of businesses expecting higher output prices in the coming months, which are strongest in the consumer goods sector.

The survey comes after official figures showed the UK entered another recession in the first quarter of 2012 after gross domestic product declined by 0.2 per cent, following a 0.3 per cent drop at the end of last year.

While the country’s leaders have made manufacturing a key part of their plan to rebalance the economy, the sector failed to lift the economy out of the doldrums in the first quarter

Economists have already raised concerns about the second quarter, as additional bank holidays for the Queen’s Diamond Jubilee are expected to knock growth.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The CBI industrial trends survey for May shows an appreciable loss of momentum in the manufacturing sector, thereby adding to concerns about the economy’s ability to return to growth in the second quarter.”