UK manufacturing production expected to edge higher

Growth in UK manufacturing production is expected to pick up slightly over the next three months with firms the most positive about output for almost two years, according to the CBI.

But the business group warned that prospects for the sector remain muted, as overall demand remains weak. Of the 548 manufacturers that responded to the CBIs monthly Industrial Trends Survey, 25% expect output to rise in the next three months, while 18% anticipate a fall. The resulting balance of +7% is the strongest figure since March 2008 and compares with a balance of +4% in January.

Exports order books are continuing to improve thanks to the continued weakness of Sterling and improving global demand. 14% of firms said exports were above normal and 38% said they were below normal. The resulting rounded balance of -23% is the least negative since August 2008 and in line with the survey average. Total order books, however, remain more depressed. 10% of manufacturers said they were above normal, while 46% said they were below normal. The resulting balance of -36% is the least negative since December 2008, and a modest improvement on the previous months balance of -39%.

Ian McCafferty, CBI Chief Economic Adviser, said: Manufacturing production is slowly recovering as demand for UK-made goods overseas is improving, boosted by the relative weakness of Sterling. Stock levels are now much closer to requirements, suggesting the period of aggressive destocking is now over.

However, while exports are providing some welcome support, overall demand remains feeble. Given the continued weakness of total orders, growth prospects are likely to remain subdued. Stock levels remain more than adequate in relation to demand, although the balance of +12% is slightly below the survey average. For the second consecutive month manufacturers expect that prices will rise modestly over the coming quarter (a balance of +8%).