Business optimism plummets at fastest rate since Covid crisis

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Sentiment among UK manufacturers has fallen at its fastest pace since the height of the Covid crisis in April 2020.

The CBI’s quarterly industrial trends survey showed companies were increasingly dour on the outlook, citing rising raw material costs as the main headache.

The CBI also said manufacturing output and new orders had slowed and costs and selling prices had risen at their fastest pace in more than 40 years.

However, growth remained above the long-term average (+3%) as the post-Covid rebound continued to offer some support.

Investment intentions have weakened considerably, but job growth has improved and is expected to accelerate further in the next quarter.

Business optimism fell to -34% from -9% in January, while production volumes in the quarter to April increased at a slower pace than in the quarter to March (balance of +19% against +27% ).

“We think manufacturers are right to be relatively optimistic about the outlook and expect production to stagnate over the rest of this year,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Total new orders rose at a slower pace in the three months to April compared to January (+22% vs. +38%).


CBI Trends

Above: “Total New Orders Trend” – CBI.


“Manufacturing is slowing as customers temper demand in the face of huge price hikes. The fall in the total order balance to its lowest level since October is worrying as manufacturers indicate whether orders are above or below “normal”. This means that the balance acts as an indicator of the level of orders rather than the growth rate,” says Tombs.

Inflationary pressures are intense: average costs in the quarter ending April increased at the fastest rate since July 1975 (+87% vs. +74% in January), while domestic prices increased at the fastest rate. fast since October 1979 (+60% against +40%). % in January).

An additional question posed to businesses by the CBI revealed that the cost of raw materials was the most important factor behind expectations of cost growth over the next three months (80% of respondents said it was extremely important) .

Next come energy costs (59%), transport costs (41%) and labor costs (38%).

Looking ahead, companies expect a further slowdown in growth over the next three months (+6%).

“The government must re-examine short-term support measures to help businesses through this crisis. An immediate priority should be providing cash flow support for those struggling with wholesale energy costs through the stimulus loan program, while lower bills for energy-intensive industries can help sustain the UK’s competitiveness,” said Anna Leach, CBI Deputy Chief Economist.

Investment intentions for the year ahead have weakened in all areas compared to January: plants and machinery (+9% of +26%), product and process innovation (+1% of +26%) , training (-3% from +26%) and buildings (-6% from +2%).

Employment trends remain positive, with the survey revealing that the number of employees grew at a faster pace in the April quarter compared to January and is expected to grow at a faster pace over the next three months. month.

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