In the latest results from the CBI Industrial Trends Survey (ITS), manufacturing output was flat in the latest quarter, with a slight decline expected for the coming period; this is probably related to the fall in new orders recorded in the survey. Investment intentions for plant & machinery remain weak, although less so than in the two previous surveys.
Throughout this report, you should note that although it is labelled as “July”, this is the month of publication and data collection took place between 25th June and 14th July, so these results really refer to June, with the three-month blocks corresponding to the calendar quarters (Q2-25 up to “July” and Q3-25 for the future).
Manufacturing output volumes were broadly flat in the “quarter to July” having fallen sharply in the 3-month periods to both May and June. This repeated the pattern we saw in the 1st quarter of the year where the “February” and “March” surveys were both negative, only for the quarterly survey in “April” to be broadly neutral.
This survey saw 12 of the 17 sub-sectors recording lower output volumes which was largely offset by significantly higher output in the “motor vehicles & transport equipment” and “food & drink” industries. Respondents to the survey are relatively pessimistic about the prospects for the 3rd quarter with a modest negative balance being registered for the volume of output.
Total new orders fell over the “quarter to July”, reflecting a weak outcome for domestic business, while export demand was, on balance, neutral over this period. Another decline is predicted for the 3rd quarter of the year although, in this case, both home and overseas demand is expected to fall at similar rates.
This survey brings extra questions that are asked on a quarterly basis and for us, the most important topics are investment intentions and capacity utilisation. The balance of responses (“up” minus “down”) for investment intentions for plant & machinery over the coming year remains negative but, at -15, this is less than in the two previous surveys and is only just below the -12 registered in the “October 2024” survey.
Among the reasons for investment, there was an increase in the percentage of respondents saying “to improve efficiency” and “replacement” and a marginal rise for “to expand capacity”. Interestingly, among the constraints to investment, both “uncertain demand” and “inadequate return” fell, with the latter below its long-run average level. In the context of fewer multiple reposes to this question, both “labour shortages” and “short of internal finance” edged up compared to the “April” survey, with the former of these still above its long-run trend level.
Among our key industries, investment intentions improved for “transport equipment” (automotive and aerospace industries) but slipped further for both mechanical engineering (machinery) and metal products.
The main measure of capacity utilisation is the percentage of firms working below capacity and this edged up to 75, although the 4-quarter moving average eased down to 76. However, there is another question in the CBI survey that asks if firms have adequate capacity to meet expected demand – this increased to 92, its highest level since “January 2024” (in reality, Q4-2023).
The CBI press release on these survey results is available on their website at https://www.cbi.org.uk/media-centre/ (24 July) or we can let you have a copy of the summary of the results and some charts around the investment intentions data.