Despite orders at small to medium-sized manufacturers continuing to fall up to July, economic optimism is increasing

Manufacturing forecasts up despite weak activity

Increasing optimism has prompted manufacturers to upgrade growth forecasts though business activity remains weak.

Reports released today by the CBI and EEF, the manufacturers' organisation, pointed to improvements in the economy, although "significant risks" remained.

The CBI said new orders among small to medium-sized manufacturers continued to fall in the three months to July, which is "disappointing" expectations for growth. Domestic orders were static and exports fell for a fifth consecutive quarter, with output suffering a slight fall.

But prospects for the quarter ahead were said to be slightly better, with output expected to stabilise and new orders set to contract at a slower pace. Investment plans for the coming year were "broadly unchanged", the survey of 390 manufacturers showed.

Anna Leach, the CBI's head of economic analysis, said: "Despite another disappointing quarter for small and medium-sized manufacturers, with output continuing to fall, optimism about the general business situation has risen for the first time since spring last year.

"Firms expect demand to improve both at home and abroad and production to stabilise over the next three months. But manufacturers remain concerned about the impact of political and economic conditions overseas on external demand, reflecting on-going uncertainty about the global economic outlook."

Meanwhile the EEF upgraded its forecast for economic growth this year to 1.1 per cent, up from its previous prediction of 0.9 per cent, adding that growth is set to steadily increase next year to 1.8 per cent. But manufacturing is expected to contract by 0.7 per cent this year, the group estimated.

The pace of job losses in the sector is expected to be modest this year and in 2014, while the Eurozone poses less of a risk to the UK's growth prospects.

EEF chief economist Lee Hopley said: "The events of the last few years have heavily impacted on manufacturing but we are now seeing far more positive signs that growth will pick up.

“With the UK economy beginning to move through the gears and glimmers of hope in the eurozone, this should translate into more broad-based growth for manufacturing in the next few years.

"However, significant risks remain, particularly the continued failure of investment to show signs of life. We are still some way behind the previous peaks and, if we are to benefit from continued research, innovation and export growth, investment needs to pick up substantially.

“A failure to do so could see a build-up of problems in the supply chain and our competitive position slipping."

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