British manufacturing output falls at fastest pace since 2020, says CBI

British manufacturers’ output fell at the fastest pace in more than two years over the past three months, according to a survey from the UK’s largest business group.

The volume of goods and services produced by factories fell by 9% in the three months to December, the Confederation of British Industry’s (CBI) survey of 220 manufacturing firms found.

This was a steep drop from the 18% rise in output reported in the previous three months to November, and means it contracted at the fastest pace since September 2020.

The “corrosive” effect of higher inflation on the demand for goods has driven down output, the CBI said.

And the decline is set to continue into the new year with output expected to fall by 10% in the three months to March, the industrial trends survey found.

The contraction was largely driven by the food, drink and tobacco, paper, printing and media, and mechanical engineering sectors, which all reported decreasing output overall.

Output fell in in 11 out of the 17 sectors included in the survey.

Furthermore, the firms surveyed said that total order books were below normal in December, falling by 6% in December from a 5% decline in November.

However, this exceeded the consensus of a 9% fall over the period, and remained above the long-run average of a 13% decline in total order books.

The proportion of manufacturers expecting to raise prices in the next three months jumped to more than half, at 52% in December from 47% in November.

This is well above the long-run average of 6% of manufacturers who anticipate selling-price inflation, but below the the nearly-three decade high of 80% recorded in March.

The CBI said that steep rises in the cost of energy bills have weighed heavily on UK factories, which will need further support to cope in the year ahead.

Anna Leach, CBI’s deputy chief economist, said: “The corrosive effect of higher inflation on demand is increasingly clear, with manufacturing output contracting at the fastest pace in two years over the last quarter.

“While some global price pressures have eased in recent months, cost and price inflation will likely remain very high in the near term, with rising energy bills a key concern for manufacturers.

“Government support for energy costs has been considerable already, buying time for businesses to adapt to Europe’s new energy landscape.

“And with the UK economy set to be in recession through much of 2023, there remains a strong case for further support in the coming year.”

Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, said: “The outlook for the next year remains grim.

“Demand for industrial goods likely will be hit again in 2023, as real incomes are squeezed by the watering down of government support for energy bills and higher unemployment, and as businesses are forced to consolidate costs.

“All told, we expect manufacturing output to continue its decline into 2023.”