Factory order books 'depressed'

Manufacturers reported depressed order books for the 15th month in a row during August, according to the CBI. 

But the CBI also saw signs of stabilising demand, with a balance of just two per cent expecting output to fall over the next three months - the strongest result since June last year.

Ian McCafferty, the CBI's chief economic adviser, said: "The end of the dramatic de-stocking that characterised the first half of the year has allowed manufacturing output to stabilise, but order books remain depressed, and the outlook uncertain."

Export levels were well below normal despite the weakness of the pound. A balance of 46 per cent said they were lower than expected, little changed on the previous month. A total of 555 firms responded to the survey.

But manufacturers expect little change in domestic prices in the three months ahead, easing concerns over a possible slide into deflation.

Capital Economics' Vicky Redwood said the survey hinted at an improvement in underlying demand, but added: "Manufacturing is not out of the woods yet.

"The orders balance remains low historically, particularly the export orders component. And although demand conditions overseas have improved, the big picture is that the global recovery will be pretty sluggish."

Manufacturers are making a tentative recovery from a savage slump, with a revival in car production after a torrid year for the sector helping progress.

According to official figures last week, manufacturing output grew by 0.9 per cent in July - well ahead of forecasts and the best performance since May 2006.

IHS Global Insight's Howard Archer added that manufacturers were likely to make a positive contribution to the UK's exit from recession between July and September.

But he also warned: "Serious doubts remain about the strength of demand over the medium term, particularly once stimulus measures start being withdrawn."

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