In April, sentiment within the manufacturing sector saw an improvement, with output expectations reaching their strongest point in six months, as reported by the latest quarterly Industrial Trends Survey by the CBI.

Over the three months leading to April, output volumes remained relatively steady, following substantial declines in the first quarter of 2024. Looking ahead, manufacturers anticipate a rise in output over the next three months, with expectations reaching their highest since October 2023. Despite this, average cost growth remains elevated compared to historical standards, and costs are expected to continue increasing at a robust pace in the quarter ending July. Forecasts suggest a slight uptick in both domestic and export price inflation in the coming three months.

With a reduction in demand uncertainty and fewer concerns regarding financing costs, investment intentions for the upcoming year have improved compared to January. Manufacturers anticipate stable investment levels in buildings and plant & machinery over the next year, marking a shift from January when investment intentions hit a three-year low. Additionally, there's an expectation for increased spending on product & process innovation in the upcoming year.

Anna Leach, Deputy Chief Economist at CBI, commented:

“The outlook for manufacturers has brightened, with improved sentiment and robust expectations for future output growth, marking the strongest sentiment in six months. A more relaxed labor market has alleviated concerns about skills and labor shortages impacting output and orders. Moreover, concerns regarding access to materials and components are at their lowest since January 2020. These favorable conditions are fostering a more stable investment outlook for the year ahead.

“With the recovery still gaining momentum, it's crucial to focus on implementing significant reforms that can facilitate manufacturing growth and investment. Full capital expensing, potentially extending to leased and rented assets, could be a game-changer, unlocking the remarkable potential of our manufacturing sector and driving economic expansion.”

Based on responses from 257 manufacturing firms, the survey found:

• Business sentiment increased in the quarter ending April, following a relatively stagnant period in the three months leading to January (balance of +9%, compared to -3% in January). Export optimism for the upcoming year also saw a moderate rise (+6%, compared to -20%). Both sentiment indicators had shown decreasing optimism in all but one quarter throughout 2022-23.
• Output volumes remained largely unchanged in the quarter ending April, following a decline in March (balance of +3%, compared to -10% in the three months to March). Firms anticipate volume growth in the next three months (+11%).
• Total new orders declined in April, albeit at a slower pace than the previous quarter (balance of -6%, compared to -13% in January). Manufacturers expect orders to rebound over the next three months (+8%).
• Growth in average costs per unit of output increased robustly but at a slightly slower pace in the quarter ending April (balance of +39%, compared to +43% in January; long-term average of +18%). Cost growth is anticipated to remain elevated in the quarter ending July (+42%).
• Domestic selling prices rose over the three months ending April (+10%, compared to +2% in January). Export price inflation slowed down from January (+9% compared to +14%, now the weakest since January 2021). Both domestic and export price growth are expected to accelerate in the next three months (+27% and +22%, respectively).
• Investment intentions for the upcoming year improved compared to January. Manufacturers anticipate increased investment in product & process innovation (+15% from -5% in January, the strongest since the quarter ending January 2022). Investment in training & retraining is expected to remain broadly unchanged (+1% from +6%). Investment in tangible assets is expected to be stable, including buildings (-3% from -29%) and plant & machinery (+2% from -15%), with balances recovering from three-year lows in January.
• The primary constraint on investment was demand uncertainty (cited by 49% of manufacturers), followed by inadequate net return (36%), and a shortage of labor (+15%, the lowest in three years). Concerns regarding the cost of finance have eased from a 33-year high (excluding the pandemic period) but remain double the long-term average (11% from 22%).