Firms will invest to boost manufacturing efficiency

Better efficiency will be the primary reason for food and drink manufacturers investing in plant, machinery and buildings in the next year, rather than to meet rising demand, according to the latest industrial trends survey by the Confederation of British Industry (CBI).

Almost three-quarters of respondents (74%) in the food, drink and tobacco category said the main reason for investing was to raise efficiency, while 47% said to expand capacity and 43% said to replace kit. Yet, fears of an inadequate return on their spending (46%) and uncertainty about demand (38%) could still prevent investments.

Also, in the coming year, 65% expected to authorise less capital expenditure on plant and equipment than last year and 63% expected less on buildings.

The findings echoed views in manufacturing as a whole during the past three months. The CBI claimed that recovery had faded as overseas demand levelled out and domestic orders fell. It claimed that as a result, fewer firms were working at full capacity in July - 65% in food and drink, compared with 59% for manufacturing as a whole.

However, more firms hoped to pass on some higher costs to UK customers next quarter.

The CBI's chief economic advisor Ian McCafferty said that the unexpectedly strong recovery in manufacturing over the first half of the year had not been sustained.

He said: "Although oil prices have dropped from their high of the summer, the knock-on benefit of cheaper input costs for manufacturers has yet to feed through and firms still find it difficult to raise selling prices in response to increased costs. But pressures to increase prices remain in the system, particularly in the consumer goods section."