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Highlights:
- Britain’s manufacturing output fell sharply by a balance of -25% in Q4 2024, the fastest decline since mid-2020.
- Order books experienced a significant drop from -19% in November to -40% in December.
- A combination of weakening external demand and domestic business uncertainty is driving the downturn.
The UK manufacturing sector has experienced its steepest decline in output since the height of the pandemic, according to the Confederation of British Industry’s (CBI) latest Industrial Trends Survey. Covering the three months to December, the survey revealed a weighted balance of -25% in output volumes, a marked decline from -12% recorded in the preceding quarter to November.
Widespread Decline Across Sub-Sectors
Output dropped across 15 of the 17 sub-sectors surveyed by the CBI, underscoring the broad nature of the slowdown. Key areas such as automotive manufacturing, machinery, and chemicals saw significant contractions. Alongside shrinking output, order books experienced a sharp downturn, with the weighted balance plummeting from -19% in November to -40% in December, reflecting declining demand both domestically and internationally.
Factors Driving the Contraction
The survey identified multiple factors behind the manufacturing slump. Weakening external demand due to political instability in key European markets and uncertainties surrounding US trade policy has hit export-focused sectors hard.
Domestically, the recently unveiled Budget has further compounded challenges. The Budget’s measures, including higher costs for businesses, have led to widespread project cancellations and a collapse in business confidence. “Manufacturers are facing a perfect storm,” said Ben Jones, an economist at the CBI. “Weakened external demand, paired with domestic instability, has created significant headwinds for the sector.”
Outlook for the Next Quarter
The CBI’s outlook for the next three months remains bleak. The survey noted that output is expected to see another “steep” drop during Q1 2025 as order books remain under pressure. Manufacturing firms report continuing difficulties in securing new orders and maintaining current production levels.
Policy Implications and Industry Challenges
The manufacturing sector’s struggles reflect broader concerns about the state of the UK economy. Businesses have flagged rising input costs, supply chain disruptions, and reduced consumer spending power as ongoing challenges. While inflationary pressures have eased somewhat in recent months, these gains have yet to translate into tangible improvements for manufacturers.
Conclusion
The latest data highlights the uphill battle faced by Britain’s manufacturing industry as it grapples with domestic and international challenges. With output and orders declining at an alarming rate, the focus will be on policy measures and external market dynamics to determine whether the sector can stabilize in the coming months. For now, the outlook remains cautious, with the risk of further contraction looming large.
