Strengthening domestic demand boosts manufacturing output, but prices continue to rise - CBI

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The recovery in UK manufacturing remains in place, with an improvement in domestic demand further boosting expectations for output growth, according to the CBI. However, price pressures remain intense. Firms continue to predict a rapid rise in output prices over the next three months, with expectations close to their last peak in July 2008.  

Responding to the latest monthly Industrial Trends Survey, 26% of manufacturers said that total orders were above normal, and 21% said they were below. The resulting balance of +5% is the highest since March 2008 (+7%), marking the first time that they have been above normal since then.

By contrast, export order books weakened slightly, with 29% of firms reporting they were above normal, and 24% below. But while the resulting balance of +5% is down on February (+11%), it remains strong by historical comparison and export orders remain above par.

In line with improving demand, manufacturers' expectations for output growth have strengthened further in March's survey. 38% of firms predict an increase over the next three months, and 11% a fall. The resulting balance of +27% is the strongest since February 2007 (+28%), picking up still further from last month's already robust expectation (+23%).

Inflationary pressures remain very intense for UK manufacturers in the March survey, however, reflecting strong cost rises in oil and other commodity prices. A balance of +33% of firms predict they will have to raise output prices over the coming quarter, following similar expectations in February (+32%) and January (+31%).

Ian McCafferty, CBI Chief Economic Adviser, said: "The manufacturing recovery is picking up pace, with firms predicting robust output growth over the next quarter. Total order books have strengthened further this month, and were above normal for the first time in three years, as a firming of domestic demand adds to the healthy export outlook.

"However inflationary pressures in the manufacturing sector remain very acute, as firms look to pass on sharply increased raw material costs. Price expectations for the coming quarter now broadly match their last peak in summer 2008."

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