Large industries expect to drop prices as orders dry up

Large industrial companies are starting to plan price cuts, for the first time since 2006, in an effort to boost their slim order books and the failure of British exports to respond to the fall in the value of the pound.

This news from the CBI came with a monthly Industrial Trends Survey showing expectations for output stuck for a second month at a depressed level not seen since the deep recession of the early 1980s, which drove much of traditional British manufacturing to the wall.

Overall, the 561 manufacturers responding to the survey between November 18 and December expect to leave their prices unchanged for the next three months.

As in last month’s survey, industrialists saying they expect to cut their output in the coming three months outnumbered the handful looking for an increase by an overwhelming 42 per cent of the total sample.

The adverse balance of those describing their order books as “above normal”, rather than “below normal”, dipped only marginally to minus 35 from minus 38 in November and minus 39 in October.

But as recently as June, the survey was showing a positive balance of plus one per cent.

Only 12 per cent said their export orders were “above normal”, while 45 per cent were below. The balance of minus 33 per cent was the most adverse since October, 2003.

“It is worrying that, despite the 20 per cent depreciation in pound sterling over the past year, export orders remain so weak,” said Ian McCafferty, the CBI’s chief economic adviser.

“Our export competitiveness is increasing, but many of our key export markets are contracting rapidly.”

One reassuring feature of this survey is that although stocks of finished goods are high, they are not piling up as they did in some past economic slowdowns.

Nearly two-thirds of the respondents described their stocks as adequate. There was still a balance of 26 per cent with more stocks than they need, but that was down from 25 per cent in the November survey.

Howard Archer, UK economist at Global Insight, said: “The CBI survey reinforced the belief that inflationary pressures are now unwinding rapidly...Sharply contracting demand and activity has wiped out manufacturers’ pricing power.

“In addition, the recent sharp fall in oil and commodity prices is reducing manufacturers’ costs, easing the pressure on them to try and raise prices.”