UK factory output has fallen sharply over the summer to its lowest level in nearly three years in the latest sign that interest rate increases by the Bank of England are slowing the economy.
The monthly snapshot of manufacturing from the CBI showed production at its weakest since the economy was emerging from its first Covid lockdown in 2020.
The employers’ organisation said its members had been surprised by a slowdown in activity over the three months to August in which twice as many firms said output was falling (37%) rather than rising (18%).
Amid evidence of widespread problems for industry, the CBI said production fell in 15 of 17 subsectors in the latest three months, with marked drops in motor vehicles and transport equipment; mechanical engineering; paper, printing and media; and chemicals.
A survey of 277 manufacturers revealed that domestic and export order books were seen as below normal but price pressures continued to ease. The CBI said the balance of firms expecting to raise selling prices over the coming months was at its lowest since February 2021.
The Bank of England raised interest rates from 5% to 5.25% – its 14th successive increase in official borrowing costs since December 2021 – during the period the survey was being conducted in late July and early August. The Bank is attempting to curb high inflation through the rate rises.
Martin Sartorius, a CBI economist, said: “With output volumes contracting at their fastest pace since the Covid-19 pandemic and order books deteriorating, this survey makes for gloomy reading for manufacturers.
“However, easing price pressures will bring some relief to many manufacturing firms and the broader economy.”
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He added: “The weak outlook for manufacturing activity underlines the need to double-down on delivering sustainable growth. With fierce levels of international competition, the race is on for the UK government to offer targeted incentives to attract green investment and support firms’ decarbonisation efforts.”