The survey by the Confederation of British Industry (CBI) showed on Thursday that the UK manufacturers' order books deteriorated in March relative to February and remained well below the long-run average (-13), as April's increases in tax and wages weighed on the mood.
According to the report, the CBI's monthly factory order book balance fell to -29 this month from -28 in the previous month. This was the first decrease in the last three months. Economists had predicted the reading would decline to -30. The export order balance improved to -29 from -36, but also remained below average.
The survey also revealed that the balance for manufacturers' output expectations over the next three months fell to -2 in March, compared with +8 in February.
Commenting on the results of the latest monthly CBI Industrial Trends, Ben Jones, CBI lead economist, said that the conditions in the country's manufacturing sector remain subdued, and although there are some positive signals, especially in the aerospace and defense sectors, many companies continue to report that their order portfolios remain weak. According to manufacturers, customers are cautious about continuing capital investments due to the April increase in social security contributions paid by employers and Britain's minimum wage."
Meanwhile, commenting on the results of the Bank of England's March meeting, Alpesh Paleja, Deputy Chief Economist, CBI, said that the decision to keep the rate at the same level was highly anticipated. “This understandable caution largely reflects a growing trade-off facing the MPC in setting borrowing costs. Activity remains weak, but this doesn’t seem to be having much of an impact on inflationary pressure yet. Indeed, our own surveys show that pricing intentions have picked up again, at least in part reflecting businesses reacting to higher employment costs. The upshot of all this uncertainty is that while interest rates are likely to be cut further this year, the path down will remain gradual," he added.