Britain’s factory output is falling at its fastest rate in more than two years amid growing signs that rising inflation has pushed the economy into recession.
At a time of severe cost pressures and weaker demand for their goods at home and abroad, companies responding to the monthly survey by the Confederation of British Industry (CBI) said they expected no letup in the tough trading environment in early 2023.
The employers’ lobby group found production contracted more quickly in the three months to December than at any time since September 2020, when the economy was just emerging from the first Covid-19 lockdown.
The CBI’s monthly industrial trends survey found 33% of manufacturers had reduced output in the latest quarter, while only 23% had raised production. Weak order books mean a similar negative balance is expected in the coming quarter.
Output fell in 11 out of 17 sectors in the three months to December, with the most pronounced declines seen in food, drink and tobacco; paper, printing and media; and mechanical engineering.
Anna Leach, the CBI deputy chief economist, said: “The corrosive effect of higher inflation on demand is increasingly clear, as manufacturing output contracted 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.”
The CBI said manufacturers’ selling prices will accelerate slightly in the next three months, although they remained below the multi-decade high reported earlier in the year.
Gabriella Dickens, a UK analyst 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, as businesses are forced to consolidate costs. All told, we expect manufacturing output to continue its decline into 2023.”