By Max Clarke

Improving demand for UK-made goods, especially from abroad, has further boosted UK manufacturers’ expectations for output growth, the CBI said today.

However, manufacturing firms continue to predict a sharp rise in output prices, with expectations at their strongest since July 2008.
Responding to the latest Industrial Trends Survey, 28% of manufacturers said that export orders were above normal, and 17% said they were below. The resulting net balance of +11% is the highest since July 1995 (+11%) and is an improvement on January’s figure (0%).

Total order books strengthened in February, with 23% of firms reporting they were above normal, and 30% below. The resulting rounded balance of -8% is up on January (-16%), and is well above the long-term average (-18%).

In line with improving demand, manufacturers’ expectations for output growth have strengthened. In February’s survey, 37% predict an increase, while 14% expect a fall, giving a balance of +23%. Growth is now expected to be the strongest since the first half of 2007 (June 2007 +25%), picking up from last month’s figure of +17%.

Reflecting strong cost pressures from rises in oil and other commodity prices, inflationary pressures remain intense for UK manufacturers in the February survey. A balance of +32% of firms predict they will have to raise prices over the coming quarter, following a similar expectation in January (+31%). This is the highest figure since July 2008 (+34%).

Ian McCafferty, CBI Chief Economic Adviser, said:
“The outlook for UK manufacturing output growth is very encouraging. Firms predict further acceleration in production growth over the next quarter, supported particularly by a strengthening in export order books.
“With expectations for output growth at their strongest since before the recession, the recovery in the manufacturing sector remains well on track, and the sector should continue to make an important contribution to broader economic growth.

“However, there is still worrying evidence of strong inflationary pressures in the pipeline, with manufacturers once again expecting to raise prices sharply in the coming quarter. Firms’ predictions of price rises are now very close to their last peak in the summer of 2008.”