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British manufacturing has experienced its most significant downturn since the Covid-19 pandemic, with factory orders plummeting to their lowest level in four years, according to the latest CBI industrial trends survey.
The survey reveals a dramatic collapse in total orders, with manufacturers reporting a balance of -40 in December, dropping sharply from -19 in November. This decline represents the worst performance since November 2020, affecting both domestic and export orders.
CBI’s lead economist, Ben Jones, attributes this decline to a perfect storm of challenges. “Manufacturers are grappling with weakening external demand amidst political instability in key European markets and uncertainty surrounding US trade policies. The recent budget has severely impacted domestic business confidence, leading to widespread project cancellations and declining orders,” Jones explained.
The manufacturing sector’s struggles coincide with a rise in UK inflation to 2.6%, marking an eight-month high. This increase was primarily driven by rising petrol costs, grocery prices, and the budget’s tobacco duty increase. The Office for National Statistics reports that 15 out of 17 manufacturing sub-sectors experienced decreased output in the three months to December.
Pantheon Macroeconomics’ chief UK economist, Rob Wood, suggests these developments present a significant challenge for the Bank of England’s Monetary Policy Committee. The combination of higher taxes planned for April 2024 and the central bank’s resistance to interest rate cuts could potentially push the UK economy towards recession.
The data presents a concerning outlook for British industry, with experts warning that the manufacturing sector’s recovery may face continued headwinds throughout 2024. The situation underscores the delicate balance policymakers must strike between controlling inflation and supporting economic growth.
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