CBI flags up good news as UK industrial confidence bounces back

By SCOTT REID
Published on 24/02/2012 00:00

THE flow of positive economic news continued yesterday after a key measure of UK manufacturing activity hit a six-month high.

Economists said the latest data from the CBI suggested the sector was on course to make its first positive contribution to overall gross domestic product (GDP) growth in a year.

The report follows other surveys that have suggested trading conditions and confidence are slowly improving.

Recent figures from the Office for National Statistics (ONS) showed manufacturing output had risen by 1 per cent between November and December, much better than City forecasts, although the sector still contracted in the final quarter of 2011.

Out of the 471 manufacturers responding to the CBI industrial trends survey, 21 per cent reported total order books to be above normal, while 23 per cent said they were below.

The resulting rounded balance of minus 3 per cent compares with a reading of minus 16 in January and is the best outcome since August.

The order book boost, which included a rise in export demand, means British manufacturers expect production to rise over the next three months, with a positive balance of 15 per cent expecting an increase in their volume of output.

David Tinsley, UK economist at investment bank BNP Paribas, said he expected to see “some solid expansion” in manufacturing in the first quarter of 2012.

“This should help an overall expansion in GDP in Q1,” he added, but warned: “The rise in the price of oil since the end of January is flashing an amber warning light that the better outlook at the start of this year could yet sour.”

CBI chief economic adviser Ian McCafferty said: “Both domestic and overseas demand have strengthened, underpinning solid expectations for output growth, which is encouraging news, given the particularly difficult period for business in the final quarter of 2011.”

Samuel Tombs, an economist at Capital Economics, added: “For now, more good news. However, we continue to fear that demand for UK manufactured goods will fade as the eurozone debt crisis takes its toll.”

Official data today is expected to confirm that the UK economy contracted by 0.2 per cent in the final quarter of 2011. Many analysts are now forecasting a rebound in the opening months of 2012, which would see the economy avoid a slide back into recession.

Yesterday’s upbeat findings from the CBI came amid forecasts for a “modest” recession in the 17-nation eurozone economy this year despite recent signs of stabilisation. In its latest projections, the European Commission forecast a 0.3 per cent contraction, with Greece leading the way downwards with a hefty 4.4 per cent decline.

That would be the fifth straight year of recession in Greece, which earlier this week clinched its second massive bailout package in under two years.