British Manufacturers Expect Lower Volume of Output but Order Books and Expected Prices Improve

The latest survey of manufacturers in the United Kingdom by the CBI (Confederation of British Industries) shows a drop in the expected volume of output over the next three months. The balance between those firms that expect volume to increase over those that expect it to decrease fell to -6% from a positive 5% in October. This is the lowest balance since June, 2003.

Although pessimists still outweigh optimists with regard to order books, the balance has narrowed. For total order books, the balance fell to -4% in December from -16% in November. The balance on export order books improved from -21% to -15% in December from November in spite of the fact that during the survey period, November 25 to December 8, the pound was rising and reached a peak of $1.9459, not seen since early 1991.

Not only has the balance on the volume of order books improved, but the balance on the outlook for prices on orders over the next three months has also continued to improve. The balance has been in positive territory since March of this year, the first run of positive balances since March of 2001, and suggests that manufacturers are beginning to see some pricing power in the near future. The attached chart shows the recently improved balances on the volume of output and prices.

The fact that the balance of manufacturers expects volume to decline over the next 3 months and, at the same time, sees an improvement in orders, may account for their guarded appraisal of their finished stocks. There was a slight increase of 1 percentage point from November to December in the balance of firms satisfied with the level of their finished stocks but that the balance has deteriorated to 9% in December from 14% in December 2003.