LONDON (Reuters) - Factory orders weakened more than expected in September as a slowdown in the global economy reduced overseas demand at the fastest pace in almost a year, the CBI’s monthly industrial survey showed on Thursday.
The business lobby’s Industrial Trends survey total order book balance fell to -9 this month from +1 in August, well below expectations of a reading of -5.
“The survey is quite disappointing but not a complete surprise, given the weakness shown by the CIPS PMI survey in the past few months,” said Newedge Strategy economist Annalisa Piazza. August’s manufacturing purchasing managers’ index fell to a 26-month low, and pointed to falling output for the first time since May 2009.
The export order book balance in the CBI survey fell particularly sharply, dropping to -12 — its lowest since October 2010 — from August’s reading of zero.
Manufacturers’ reliance on export demand at a time of weak domestic spending was highlighted by car production data from the Society of Motor Manufacturers and Traders released earlier on Thursday. There, a 10.7 percent annual rise in car production for August was entirely driven by overseas demand, with domestic orders falling.
The CBI survey cast doubt on whether this pace of growth could continue.
“UK manufacturers report some slackening in demand this month, following the volatility in financial markets and the slowdown in growth in our major trading partners,” said CBI chief economic advisor Ian McCafferty. “As a result, firms now say stock levels are high relative to expected demand.”
Firms stopped short of forecasting a contraction in output, however, with the output expectations balance remaining firmly in positive territory at +9, albeit down from +13 in September.
“UK manufacturers remain optimistic that production will continue to grow over the coming three months,” McCafferty said.
However, other economists were less upbeat.
“There is little sign of a bounce in manufacturing following the disruption seen in the second quarter,” said David Tinsley, an economist at BNP Paribas. “A rise in stocks and falling export orders would seem to be a recipe for weak activity in the fourth quarter, which will increase the risk of a negative print to Q4 gross domestic product growth.”
Government spending cuts and falling real disposable income for consumers means that Britain is likely to rely on export demand to drive future economic growth.
Reporting by Fiona Shaikh, writing by David Milliken; Editing by Ruth Pitchford