The Confederation of British Industry has reported another deterioration in UK factory demand, with manufacturing order books remaining close to their weakest level since the disruption of 2020.
The CBI’s Industrial Trends Survey recorded an order book balance of -45 in July, indicating that considerably more manufacturers considered orders below normal than above normal. The reading was unchanged from June and matched the lowest recorded since September 2020.
Total new orders over the preceding three months fell at their fastest pace in six years, with the balance declining to -24 from -22 in April. Domestic orders returned a balance of -29, while export orders recorded -16, leaving manufacturers with little support from either market.
Expectations for the following quarter also remained subdued. Companies anticipate that the decline in total new orders will accelerate during the three months to October, when the balance is forecast to reach -28.
Output fell during the quarter to July, although the rate of contraction eased slightly compared with June. Thirteen of the 17 manufacturing subsectors covered by the survey reported lower production, led by food, drink and tobacco, paper, printing and media, and metal products.
Aerospace and motor vehicles were among the limited number of subsectors recording growth, supported by long programme backlogs and transport manufacturing demand. Their performance was not sufficient to offset weaker activity across shorter-cycle industrial markets.
The July findings continue the pattern established when manufacturing order books declined sharply in June, but cost pressure has since intensified. Average unit costs rose at their fastest rate since October 2022, with the balance climbing to +65.
Manufacturers expect costs to continue increasing rapidly through the next quarter, returning a forward balance of +50. Weak demand limits the ability to recover those increases through selling prices, leaving companies to absorb more of the pressure through margins, employment, purchasing, and capital expenditure.
Factories reduce investment as margins tighten
The combination of falling orders and higher costs has moved directly into investment planning. Intentions for expenditure on buildings and plant and machinery both returned balances of -43, while planned spending on product and process innovation fell to -22.
Training investment recorded a balance of -20, adding a workforce constraint to the reduction in physical capital spending. Although individual companies continue to invest where projects offer rapid productivity or compliance gains, retrenchment is now more common than expansion across each category measured by the survey.
More than half of respondents identified uncertainty over demand as a constraint on capital expenditure. Inadequate return on investment was cited by 30%, while 26% reported that a shortage of internal finance was restricting investment, the highest reading for that measure in six years.
Projects without an immediate effect on throughput, energy use, labour requirements, or regulatory compliance will face especially difficult approval conditions. Manufacturers preserving cash are likely to defer building work, replacement programmes, digital projects, and capacity additions until order visibility improves.
Repeated delays carry their own cost. Ageing equipment becomes more expensive to maintain, while obsolete controls, inefficient motors, compressed air losses, and limited production data can prevent companies from achieving the improvements needed to compete with more modern plants.
Employment expectations have weakened alongside investment. Headcount fell in the quarter to July, and manufacturers expect the decline to accelerate during the following three months.
Recruitment freezes can reduce short-term expenditure, yet prolonged reductions leave factories with fewer experienced operators, maintenance technicians, toolmakers, and manufacturing engineers. When demand returns, rebuilding those capabilities is slower than restarting a machine or increasing material orders.
Industrial electricity prices remain a structural constraint. CBI analysis places UK industrial electricity costs around 45% above the G7 median, exposing domestic factories to a disadvantage before differences in labour, transport, finance, and regulatory costs are included.
The effect extends beyond industries normally described as energy intensive. Machining, compressed air, refrigeration, heat treatment, cleanrooms, pumping, data infrastructure, and automated production systems all add substantial electrical demand to factory overheads.
Long programme backlogs provide a measure of protection for aerospace and selected automotive suppliers, although those sectors face their own pressure to finance tooling, stock, and labour before customers complete payment. Manufacturers serving domestic construction, consumer goods, and general capital equipment remain more directly exposed to delayed purchasing decisions.
Survey balances do not measure production volume or company turnover directly, but their breadth shows that deterioration is no longer confined to a small group of subsectors. Demand has weakened, unit costs have accelerated, and businesses are reducing the investment required to improve future output.
Industrial strategies and public funding programmes may support individual technologies or regions, although factory decisions are being taken against current order books and cash flow. Without greater stability in demand, energy costs, and financing conditions, cautious investment is likely to remain a defining feature of UK manufacturing through the autumn.
