Export growth drives UK manufacturing

Published on Friday 22 June 2007 00:49

DEMAND for UK-manufactured goods has now risen to a 12-year high, a CBI survey yesterday highlighting a marked improvement in overseas orders.

The business group said 29 per cent of manufacturers reported total orders above normal this month, while 22 per cent were below. The rounded balance of plus 8 per cent was an improvement on the past two months and in line with March's 12-year peak.

A balance of plus 16 per cent of firms expect to raise prices over the next three months, showing that price pressures in the manufacturing sector still persist.

But in what is an especially encouraging line for the Bank of England, the CBI said the figure eased from May's 12-year high of plus 25 per cent.

The CBI's chief economic adviser, Ian McCafferty, said: "The manufacturing sector is motoring along, with solid order books and strong expectations of output growth.

"Pricing pressures from manufacturers have reduced however, so while there is still a likelihood of interest rates going up, inflation concerns stemming from the sector should start to ease."

The CBI noted demand for consumer goods - such as electricals and food - has been particularly strong, while order books are also steady for intermediate goods such as machinery and tools.

The strengthening demand was helped by an improvement in export orders, which returned to a normal level, despite the continued strength of sterling.

Ross Walker of Royal Bank of Scotland Financial Markets, said: "This is about as good as it gets for British industry."

In a sign of the booming conditions manufacturers are enjoying, more firms also reported that their inventories were falling than rising for the first time since June 1988. The stocks of finished goods balance fell to minus 2, from plus 8 in May.

"This survey is therefore telling us that, in the manufacturing sector, activity remains strong, prices elevated and spare capacity limited," said George Buckley, economist at Deutsche Bank.

Those are exactly the indicators that BoE Governor Mervn King, who wanted to raise interest rates this month, warned would have to ease if interest rates were not to rise further.

"The message: further tightening required," Buckley said.