UK manufacturing sector continues to grow but Brexit challenges lay ahead

Output in Britain's manufacturing sector continued to expand at a solid rate in September, according to the latest monthly Industrial Trends Survey from the Confederation of British Industry (CBI).

The survey found that manufacturers are expecting the rate of production to accelerate rapidly, with 11 of the 18 sub-sectors upgrading their expectations for output over the next three months. Of the 481 firms surveyed, 18% reported total orders were above normal, while 22% said orders were below the trend, giving a rounded balance of -5%.

Meanwhile, 16% of businesses reported export orders to be above normal and 26% below, resulting in a balance of +10% and 33% of businesses reported a rise in output volumes, and 22% a fall, translating in +11% balance.

Chemical firms experienced the sharpest drop in overseas demand, contrasting with the motor vehicle and transport sector, which reported the greatest improvement, the CBI added. Total orders remained unchanged from the previous month and were comfortably above average levels.

"It's good to see that manufacturers are enjoying a lingering summer with output running at a strong pace and manufacturers' order books remaining solid, particularly among the food, drink and motor vehicles sectors," said CBI chief economist Rain Newton-Smith.

"Our members tell us and our surveys show that the fall in sterling has boosted international competitiveness for many businesses, with export order books remaining well above average in September, despite weakening slightly."

Companies' near-term expectations for prices eased, as the majority of respondents said they expected no significant changes over the next quarter. Average prices are expected to reduce slightly over the next quarter, with 15% companies expecting to raise prices and 9% expecting to cut prices, bringing the balance to +5%, compared with +8% in August.

However, Newton-Smith warned Britain's manufacturing sector faced significant obstacles as the country's Brexit negotiations continue.

"There are plenty of challenges ahead for manufacturers as we adjust to a new relationship with the EU and the rest of the world," she said.

"That's why we want to see a focus on promoting investment and innovation in the Autumn Statement to ensure our makers are able to put their best foot forward and adjust to new opportunities."

Howard Archer, chief UK and European economist at IHS Global Insight said: "There are some serious dangers lurking for the manufacturing sector following the Brexit vote. Much could depend on how much the boost to foreign orders from the substantially weakened pound. We suspect that 2017 in particular could see increasingly pressurized domestic demand for capital goods and big ticket consumer items."