Domestic demand boosts manufacturing output

British factory orders growth hits highest level in three years

Recovery in the manufacturing sector is picking up pace after order books hit their highest level for three years, the CBI says.

UK manufacturers were boosted by growing domestic demand, with a balance of five per cent saying orders were above normal in March in its first positive reading since June 2008.

Expectations for growth rose to their highest for four years as a balance of 27 per cent of manufacturers predicted an increase over the next quarter but there was no let-up in price inflation as rising oil and commodity costs left a balance of 33 per cent of firms predicting price rises over the next quarter, up from 32 per cent last month.

CBI chief economic adviser Ian McCafferty said manufacturing recovery was picking up pace, with “firms predicting robust output growth over the next quarter”.

“However, inflationary pressures in the manufacturing sector remain very acute as firms look to pass on sharply-increased raw material costs.”

The survey will raise hopes that the manufacturing sector can help the UK return to growth in the first quarter of 2011.

The economy contracted by 0.6 per cent in the final quarter of 2010 following disruption from December's Arctic weather.

But the survey also signals that further inflation is on the way following today's official figures revealing the Consumer Price Index rose to 4.4 per cent in February.

The CBI said the balance of manufacturers expecting to increase prices over the next quarter was the highest since July 2008.

The survey also showed export growth weakened slightly in March, after a balance of five per cent reported order books were above normal, down from 11 per cent in February.

However, this is still well above the long-term average and the slowdown in export growth was more than offset by domestic demand.

Most parts of the manufacturing sector saw their order books increase, with the exception of industrial goods, which experienced a slight weakening in demand.

Manufacturers also benefited from the weak pound and rebuilding of stocks, which were slashed during the recession.

IHS Global Insight chief economist Howard Archer said the manufacturing sector was “very much the star performer in 2010 and today's survey suggests this remained the case in the first quarter of 2011 - it also suggests manufacturers are starting the second quarter in fine fettle”.

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