Factories struggle even before second wave of restrictions

Factories were struggling to get back to growth even before the latest threat of Covid restrictions, with weak demand undermining efforts to return to normality.

Most parts of the manufacturing industry reported weak output in the three months to September, the Confederation of British Industry (CBI) said.

Businesses making motor vehicles and transport equipment suffered the most, according to the group’s regular survey.

The proportion of businesses that said output had fallen compared to normal levels over the past three months outweighed those who said it had risen by a margin of 20pc.

This is up from minus 46pc in August and represents the smallest negative result since March. But it is still far worse than the average score of the past 25 years, which stands at plus 3pc.

Even this slower pace of contraction in the industry may not last.

The net balance for order books fell to minus 48pc, from minus 44pc in August, indicating a growing share of companies suffered falling demand.

This was driven by a fall in domestic orders, though exports also remained very weak.

Manufacturers said they expected to be able to keep output roughly flat in the coming three months, with diminishing stocks meaning they may have to ramp up production to fulfil even these smaller order books.

Samuel Tombs at Pantheon Macroeconomics was more upbeat about the industry’s prospects than the survey’s findings were. He suggested that the manufacturing sector has put on some growth, but that it is now set to slow down.

“The recovery in the manufacturing sector appears to be losing momentum; strong growth in output over the summer likely was partly due to firms shifting work backlogs that had amassed during the lockdown,” he said.

“While demand for consumer goods is strong, it is very weak for capital goods, as corporates are holding back from large investments in response to both Covid-19 and Brexit.”

The CBI wants the Government to offer more financial support to companies, given more restrictions are set to be introduced.

“As manufacturing firms continue to battle against headwinds from a resurgence of the virus, weak global demand and uncertainty over our trading relationships, the Government must step up its support,” said Anna Leach, deputy chief economist at the industry group.

“As the Job Retention Scheme comes to an end, a successor must be found, while a deal with the EU will help underpin businesses’ resilience.”