On the same day (25 July) that the UK Government announced an unexpectedly large reduction in national output of 0.7% for the April-June period – the third quarter of successive falls – Britain’s CBI published a far more upbeat assessment of UK’s manufacturing sector.

They say the UK manufacturing sector is showing resilience in the face of challenging economic conditions, with orders and output growth steady.

Both measures of activity used indicated modest growth in the three months to July, while manufacturers’ optimism about the general business situation was broadly stable relative to the previous three months (-6%).

Of the 398 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 29% reported that total orders had increased in the three months to July, while 26% said that they had fallen. The resulting balance of +3% is above the long-run average (-3%), but a little below the +8% balance in the three months to April. Export orders weakened slightly (-6%), but the balance was broadly in-line with its long-run average (-8%). Total orders are expected to grow at a similar pace over the next three months (+4%), with export orders expected to be flat (0%).

Output growth picked up slightly in the quarter to July, with 29% of manufacturers reporting output volumes were up compared with the previous three months, and 21% saying they were down. The resulting balance of +8% is the strongest seen this year, and above the long-run average (0%). A further modest pick-up in growth is expected over the next three months (+11%).

Anna Leach, CBI Head of Economic Analysis, said:

“Despite a further escalation in the Eurozone crisis, this survey shows some resilience in the UK manufacturing sector, with sentiment about the general economic situation broadly stable.

However, with Europe as our biggest export market, and while the Eurozone crisis continues unresolved, prospects for UK manufacturing will remain uncertain.”

Domestic and export prices were broadly flat in the three months to July (balances of -2% and +2% respectively). Average unit cost inflation dropped sharply to its lowest level (0%) since January 2004 (-1%). Manufacturers expect both domestic and export prices to remain broadly flat in the coming three months (balances of -3% and -2% respectively), while unit costs are expected to fall slightly (-5%).

The past quarter saw manufacturers continuing to stockpile raw materials (+9%), and unfinished and finished goods (+11% and +8% respectively).

Investment intentions for the next twelve months were down across all three categories, but remained relatively firm. Intentions for product & process innovation were particularly strong (+19%), and planned spending growth for plant & machinery (-4%), and training & retraining (+10%) were both in line with their long-run averages.

Reflecting continued uncertainty in the Eurozone, the number of firms citing uncertainty about demand as a factor likely to limit capital expenditure over the coming year was above the long-run average (+55% compared with an average of +49%).

The three months to July saw an increase in numbers employed (+13%) for the eighth consecutive quarter, and firms expect headcount to be stable in the coming three months (-2%).

The unexpectedly large fall in the GDP output is largely attributed to the poor performance of the construction sector.