Hopes of a recovery in the manufacturing sector were boosted today after a survey revealed firms expect the strongest rise in trade for a year.
The report by business body the CBI showed a balance of 24 per cent of firms expect output to rise over the next three months – its strongest reading since last March, improving the outlook for the UK’s stalling economic recovery.
But the survey also warned that a growing number of manufacturers are likely to raise their prices in the coming quarter, with the balance for this measure at its highest since June amid spiralling oil prices.
Growing inflationary pressures could hamper the UK’s recovery by stifling consumer spending.
CBI chief economic adviser Ian McCafferty said: “The recovery in the manufacturing sector seems to be building some momentum.
“However, expectations for output price inflation have also moved higher, most probably reflecting the recent rise in oil prices.
“Any further rise in oil prices would be a significant concern, given the additional cost burden this would place on UK manufacturers and the knock-on effects it could have on the nascent recovery.”
The warning comes on the day the Office for National Statistics revealed that the consumer prices index (CPI) rate of inflation dipped to 3.4 per cent, compared to 3.6 per cent in January, helped by falling electricity and gas bills.
This was not quite as low as the 3.3 per cent expected by the City, as the falls were held back by alcohol price hikes.
The survey showed that order books both at home and overseas were above their long-run average, although they had slowed slightly since last month.
The manufacturing sector contracted in the final quarter of 2011 but is expected to return to growth in early 2012.
The recent data on the manufacturing sector has been mixed, after official figures showed output rose by 0.1 per cent between December and January, a much weaker performance than the 1% jump reported for the previous month.
A separate industry survey revealed weaker than expected growth in February.
Howard Archer, chief economist at IHS Global Insight, said: “This is a relatively encouraging survey that suggests that the manufacturing sector can continue to expand in the second quarter after seemingly returning to growth in the first quarter of 2012 following a torrid second half of 2011.”
But Samuel Tombs, UK economist at Capital Economics, said the deterioration in order books suggested that the resilience in today’s survey may not last.