CBI Industrial Trends Survey, March 2019: The latest edition of the CBI survey showed that output growth was marginally up in the 3 months to March (although the data gathering took place between 25 February and 13 March) and right on the long-run average level. Output expanded in 11 of the 17 sub-sectors covered by the survey with the main drivers of growth being the Food & Drink, Chemicals and Metal Manufacturing industries. However, it is important for us to note that the sectors where output growth was negative included both Mechanical Engineering (Machinery) and the Automotive & Transport Equipment industries. Looking forward over the next 3 months, respondents expect a broadly similar pace of growth overall.
Total order books softened compared to last month’s survey but remained above their long-run average. This appears to be a sign of weakness in the home market as export order books strengthened and continue to be at a good level in relation to the long-run average.
Stocks of finished goods continued at the level that we saw in the February survey and are broadly in-line with the long-run average.
There was an extra question in this survey that asked manufacturers how Brexit uncertainty was affecting their activity. A quarter of respondents reported stock-building, with others mentioning depressed investment and demand due to uncertainty with others saying that they had found it difficult to get export orders.
You can access the CBI Press Release on their web-site at www.cbi.org.uk/news (20 March) or request it from MTA - we can also send you a short summary of the results.
Bank of England Agent’s Summary of Business Conditions, 1st Quarter 2019: The latest summary from the Bank of England Agent’s shows a slowing in the pace of growth in manufacturing output for both the domestic and export markets. At home, this was mainly in the Automotive industry and a weaker construction sector that was only partially off-set by an increase in stock-building. Overseas, weaker demand from Europe and China led to the Agent’s score for this measure falling to its lowest level in more than 2 years; again, the Automotive industry is a significant part of this weakness.
The Agent’s score for investment intentions in the manufacturing sector fell to its lowest level in nine years, with Brexit uncertainty the main stumbling block to capital expenditure. Some companies reported that they preferred to build cash reserves or inventories. The investment that is taking place is mainly for replacing essential kit or on projects with a short pay-back period.
Capacity utilisation stabilised at above “normal” rates across the whole economy, but the Agent’s report does not specifically mention the situation for the manufacturing sector.
The latest report also covers a survey by the Agent’s on Brexit preparations, with almost 300 businesses covered by this exercise. It revealed that around two thirds of respondents said that they had started implementing contingency plans for a “no deal, no transition Brexit”; this compared with just under half of respondents in the survey two months earlier. There are range of actions including putting resource into Brexit planning, engaging with customers directly to manage risks and applying for certifications that may be needed to continue trading with the EU after Brexit. Companies in the manufacturing sector are most likely to be increasing stocks, with related intelligence suggesting that this was up to three times the “normal” level.
The latest survey also showed that respondents - even those that felt ‘ready’ - still expected output, employment and investment over the next 12 months to be significantly weaker under a “no deal, no transition Brexit” than under a “deal” scenario. On average, companies expected output and employment to fall, though to a lesser extent in March than in the previous survey, but investment in the UK was expected to fall more sharply in the March survey than in the previous surveys. The report notes that the differences between the survey results may be partly due to sampling issues.
You can download the Bank of England Agent’s report from their web-site at https://www.bankofengland.co.uk/agents-summary/2019/2019-q1 or request a copy from MTA.
UK Trade in Goods by Industry, 4th Quarter 2018: Publication by the Office for National Statistics (ONS) of the data on trade in goods by industry for the 4th quarter of 2018 gives us the full year figures and we will concentrate on that total in this comment. However, before we do that, it is worth noting that exports from the 4 key industries that we track fell by -3.3% compared to the 3rd period of 2018 and were -1.3% lower than in the final quarter of 2018. The trends for imports were +4.6% and +4.9% respectively.
Following a substantial increase of +12.6% in exports from the 4 industries in 2017, the pace of growth slowed in 2018 with total exports only +2.0% higher than they were in 2017. The total for all engineering, which includes electrical and electronic engineering was growth of +1.7%; this means that Engineering exports accounted for 52.0% of all manufactured goods exports from the UK in 2018.
Looking at our key industries, exports of Machinery showed the strongest growth in 2018 at +7.9%; exports of Metal Products grew by +2.2%. With the Aerospace industry having seen export growth of +16.2% in 2017, it was perhaps inevitable that the pace would slow and the 2018 growth rate was only +0.1%; bringing in all the other types of transport equipment, most notably in this case ship-building, the growth rate for exports by the Other Transport Equipment industry was +0.7% in 2018. The weak spot was in the Automotive industry where exports fell by -1.2% last year.
Across the 4 industries, exports to the European Union (EU) accounted for 40.7% of the total. For the Metal Products industry, the EU share was 50.7%, while for Aerospace, it was only 34.4% - Machinery (43.1%) and Automotive (41.7%) lay between these two extremes.
Despite the increase in the final quarter, imports of goods for the 4 industries declined in 2018 by -1.0%, although the total for all engineering did rise slightly (+0.6%). Overall, total engineering accounted for 47.9% of total manufactured imports. By industry, imports of Metal Products increased by +22.9%, with Machinery (+3.2%) also recording a positive trend. The Automotive industry saw imports fall by -1.0% in 2018, whilst the largest percentage decline was in Other Transport Equipment at -13.7% (within that industry, Aerospace imports were down by -12.8%).
Across the 4 industries, imports from the EU accounted for 69.6% of the total in 2018, with the individual industry ratios ranging from +28.6% for Other Transport Equipment (25.0% for Aerospace), through 60.2% for Metal Products and 60.6% for Machinery, up to 82.5% for the Automotive industry.
You can download the data tables (which include some detail within the various industries that we have quoted) from the ONS web-site at https://www.ons.gov.uk/releasecalendar (11 February) or an edited version, concentrating on the most important industries for MTA members is available on request from Geoff Noon (e-mail: email@example.com).
European Trade Partners 2018: Continuing the trade theme, Eurostat has published an analysis of the main trading partners for the European Union in 2018, focusing on trade in goods. Looking first at extra-EU trade (adding exports and imports together), the USA is the number one trade partner for the EU as a whole, accounting for 17.1% of the total; it is followed by China (15.4%), which is well ahead of Switzerland (6.7%), Russia (6.4%), Turkey (3.9%) and Japan (3.4%).
Turning to the individual countries, Germany was the top destination for the export of goods for all but three nations; Germany was obviously one of them and the other two were Ireland and the UK - for all 3 of these countries, the top export destination was the USA. Taking the data for each country, 64% of total exports were destined for another EU member state, with the highest ratio in Slovakia (86%), the Czech Republic and Luxembourg (both 84%), while Cyprus and the UK were the only ones where the EU accounted for less than ½ of total goods exports.
Not surprisingly, Germany was the top source of imports of goods into 17 Member states, with another EU member topping the list for all of the others except Lithuania (where Russia was the largest source of imports) and Netherlands (China). For the EU as a whole and considering only imports from outside of the block, the main countries of origin for imported goods were China (20%), the USA (13%) and Russia (8%).
Among the types of products covered by this analysis, a combined heading of Machinery and Transport Equipment (which covers three of our four key industries) was the largest category, accounting for 41% of extra-EU exports and 31% of extra-EU imports. Chemicals (18% of exports and 10% of imports) was another important category and while Energy only accounted for 6%of extra-EU exports, it was 21% of imports (and no doubt explaining the importance of Russia among the import partners).
You can download the Eurostat News Release from their web-site at www. http://ec.europa.eu/eurostat (14 February) or request it from MTA.