New manufacturing orders fell slightly in the three months to April but output increased, according to a survey.
The decrease in total new orders was driven by a fall in domestic demand this quarter, the fastest pace of decline since January 2012, whereas export orders stabilised.
However manufacturers have increased their stocks of work in progress and finished goods.
This was most likely in anticipation of a better coming quarter, with expectations for total orders growth at the strongest level for a year.
Meanwhile output is also expected to rise and manufacturers’ optimism has improved.
Employment in the sector increased in-line with expectations in the three months to April, and manufacturers expect to increase their headcount in the next quarter.
Contrary to expectations, domestic price inflation was unchanged on the quarter, but growth in average unit costs was the highest since January 2012, squeezing manufacturers’ profit margins again.
However, weaker sterling meant that the number of businesses citing prices as a factor likely to limit export orders fell to the lowest level since April 2012.
At the same time, concern about the effect of political and economic conditions abroad on exports rose to its highest for a year.
Stephen Gifford, CBI Director of Economics, said: “This quarter was a mixed bag for manufacturers, with new orders disappointing because of a decline in domestic demand, but output did increase.
“Firms are expecting to ramp up production in the coming quarter on the back of an expected rise in new orders.
“Although weaker sterling has eased concern about international competitiveness, manufacturers highlight the potentially chilling effect of political and economic instability abroad on export orders, such as the Cyprus crisis.”