Gloom has descended on the boardrooms of British industry over the past three months and the CBI fears that manufacturing may be in a “technical recession”, with output shrinking in both the second and third quarters of this year.
The CBI’s latest quarterly Industrial Trends Survey presents a picture of a crisis of confidence, most marked in industries hit hardest by rocketing oil and commodity prices and struggling to preserve their margins by passing these costs on to their customers.
Manufacturers saying they are less optimistic about the outlook for the coming three months outnumbered their hopeful counterparts by 40 per cent of the entire sample, an overwhelming pessimism not equally since the depth of the dot-com crisis in October, 2001.
It represents a marked darkening of the mood since April when this question produced a negative balance of minus 23 per cent.
“Cost pressures on manufacturers have been noticeable for over four year, but in the last three months they have been their most intense for nearly three decades, said the CBI’s chief economic adviser, Ian McCafferty.
“So it comes as little surprise that manufacturers are passing some of these costs on to customers, although this is unlikely to rescue profits from a margin squeeze.
“The record oil price peaks in the last three months have pushed down further on business confidence and lowered firms’ expectations for demand in the coming quarter.”
Average unit costs rose for 65 per cent of the 525 manufacturing companies taking part in the survey and fell for just seven per cent.
A balance of 27 per cent said they had raised their prices in the home market, but this dipped to 19 per cent for exports.
Mr McCafferty suggested that exporters were using the competitive advantage arising from the fall in the value of the pound against the euro to win market share rather than boost profits here and now.
Export orders have held up well as a result with a negative balancer of just two per cent saying they had fallen.