Manufacturing output volumes fell in the quarter to October, at a similar pace to the three months to September, according to the latest figures from the Confederation of British Industry (CBI).

The volume of new orders fell sharply, with both domestic and export orders contracting at the fastest pace since July 2020 and expected to fall again in the quarter ahead.

Business sentiment has deteriorated further, with investment intentions for the year ahead weakening markedly, and competitiveness worsening across all major markets.

Cost growth remains elevated, although growth in domestic selling prices slowed and export prices have fallen, suggesting a squeeze on margins. Manufacturing headcount fell, and numbers employed are expected to fall again in the next three months.

CBI deputy chief economist, Alpesh Paleja, said: “The past month brought a few bits of good news for the UK economy. CPI inflation came in lower than expected in September, at 3.8 per cent.

“The pace of deterioration in the labour market may also be easing: the number of payrolled employees fell by 16,000 in Q3, the slowest decline over this year so far. Meanwhile, UK government bond yields have fallen, offering a bit of relief to the Chancellor ahead of the Budget.

“But, taking a step back, the broader picture remains one of subdued momentum. GDP growth in the three months to August held steady at 0.3 per cent, a modest pace compared with earlier this year.

“While not a poor result on its own, our surveys continue to show that activity in the private sector remains much weaker.

“The big picture in the labour market also remains one of deterioration and, even with the downside surprise in September’s inflation data, price pressures and inflation expectations remain stubbornly high. On balance, this means that the Monetary Policy Committee (MPC) is likely to pause its rate-cutting cycle at its November meeting.

“However, lower-than-expected outturns for inflation and wage growth could reassure some members of the MPC, increasing the chances of another rate cut in December.

Fiscal outlook remains tight

“Even if the Office for Budget Responsibility (OBR) takes the recent fall in gilt yields into account in its forecasts, the Chancellor’s fiscal position remains difficult. Public sector borrowing has persistently run ahead of the OBR’s expectations, so far this fiscal year (by over £7bn). Adding to the challenge, the OBR is reportedly downgrading its expectations for productivity growth, which would further widen the fiscal gap the Chancellor needs to close.”www.cbi.org.uk