Manufacturing gets surprise boost as overseas demand drives orders

Britain’s manufacturing recovery received a surprise boost yesterday after a key survey showed that demand from overseas helped lift orders this month.

Economists described the latest findings from the CBI as reassuring after a positive balance of 1 per cent of manufacturers said their order books were above normal, up from minus 10 per cent a month earlier.

The rebound was driven by an improvement in exports, which were seen as being broadly at normal levels, while expectations for growth over the next quarter rose for the first time since March.

The survey – based on the responses from 510 companies – provides some welcome news after a raft of gloomy data suggested that the sector had slowed in recent months, giving rise to fears that the UK government’s plans for an export-led recovery were failing to gain momentum.

However, the CBI warned the sector still faced a growing threat as stock market volatility hit business confidence amid fears of a global recession.

Richard Woolhouse, CBI’s head of fiscal policy, said: “Manufacturing order books are holding up, and expectations for output growth are above their historical average, although they are less strong than earlier this year. But the risks to manufacturing activity and business confidence have, if anything, increased due to market volatility and the recalibration of growth expectations worldwide.

“Concerns around growth in the US and the euro area present further challenges to the manufacturing recovery.”

The survey also showed that inflationary pressures have continued to ease after the strong price rises in the first half of 2011 and remain “fairly modest”.

A balance of 9 per cent of manufacturers expect to raise prices over the next three months, which is up on last month’s 4 per cent but below the figures of more than 30 per cent reported in the first half of the year.

Samuel Tombs, an economist at Capital Economics, said: “August’s survey provides a bit of reassurance that the recovery in manufacturing sector has not completely petered out.

“That said, the message of the survey does go against the grain of recent news on manufacturing, and it has occasionally been too upbeat relative to the official data in the past.”

Simon Hayes, of Barclays Capital, said: “The survey for August was solid, belying concerns that UK manufacturing has lost momentum.”

But he added that he was “rather sceptical” that the survey gave an accurate reading on the sector, after the closely-watched Markit/Cips manufacturing report showed it had “dropped like a stone” in recent months.

The outlook in several of the UK’s key export markets is worsening. German analyst and investor sentiment showed its biggest one-month drop in five years in August and the latest eurozone purchasing managers’ index showed a contraction in manufacturing.