New orders hit three-month low
Oct 24 2007 by Iain Laing, The Journal
BUSINESS sentiment among UK manufacturers slumped in October following the recent turmoil in financial markets, according to new figures.
A balance of 13% of firms said they were less optimistic about the business environment than they were three months ago – the sharpest decline in sentiment since January last year – the CBI’s latest quarterly industrial trends survey showed.
Manufacturing output growth also stood at its slowest rate in a year, with a balance of just 1% of firms reporting an increase.
Meanwhile, the balance of total new orders swung from plus 6% in September to minus 6% this month – a three-month low and below expectations of a weakening in growth to plus 4%.
While the softer data is likely to add to expectations that interest rates look set to decline, it is unlikely to be weak enough to persuade the Bank of England to cut rates next month, particularly given the strong GDP and retail sales figures released earlier this month.
Malcolm Barr, UK economist at JP Morgan Chase Bank, said: “The CBI survey is consistent with an outlook in which growth is set to slow, but does not signal that a sharp downshift is in prospect. We continue to think the Monetary Policy Committee will not have seen enough weakness to cut in November.”
The strong pound appeared to be taking its toll on export orders, as the balance fell to a 12-month low of minus 9%. Manufacturers also revealed they were less inclined to invest in expansion after 60% of firms said they were operating below capacity – the highest figure in 21 months.
Despite the downturn in investment intentions, though, the CBI said that there were no indications that the recent upheaval in the financial markets had made it more difficult for firms to raise finance.
Based on a balance of 11% of businesses reporting reduced employment numbers, the CBI estimates that 7,000 jobs were lost in the sector in the third quarter, while a further 10,000 jobs could be lost in the final three months of the year.
Ian McCafferty, CBI chief economic adviser, said: “There are some tentative signs the pace of demand and output growth will edge lower in the coming months. Domestic demand is now starting to respond to higher interest rates and exporters are feeling the impact of a weaker dollar.”
