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21 Jan 2021 | 10:47

UK factory output flattens but further drop expected - CBI

(Sharecast News) - UK factory output flattened in January after more than a year of declines but production is expected to drop again after orders fell, a survey showed. The Confederation of British Industry's index of production registered a score of -2% in the three months to January compared with -6% in December. The broadly stable result ended 15 months of declines.

Output rose in 9 of 17 subsectors as expansion in pharmaceuticals and mechanical engineering offset a drop for food, drink and tobacco.

New orders fell, led by dropping domestic demand and factory managers expect orders and output to fall again in the next quarter. Business sentiment fell sharply to -22% from 0% in October and investment plans for machinery, product and process innovation dropped.

The CBI called on the government to provide more support for manufacturers with the economy predicted to get worse before it improves and Chancellor Rishi Sunak preparing his budget for 3 March. The business lobby said Sunak should act swiftly before the budget by extending the job retention scheme and repayment for VAT deferrals until the end of the second quarter.

Cost growth accelerated and almost half of manufacturers said they were concerned that lack of materials or components could limit output. Many companies are suffering disruption after the end of the Brexit transition period.

Rain Newton-Smith, the CBI's chief economist, said: "Manufacturers across the board are continuing to battle major headwinds, with domestic and export orders notably falling. With growing costs and materials shortages mounting further pressure on firms at a time when they're experiencing much less demand, the government must avoid tapering off existing business support with a cliff edge in March."

Employment in manufacturing fell but at the slowest pace since October 2019.
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