Manufacturing production rose for the first time in two years, as overseas demand for UK-made goods increased and stock reductions eased, the CBI has announced.
The business groups latest quarterly Industrial Trends Survey revealed a stronger-than-expected rise in output in the three months to January. But the CBI warned that the outlook for the sector remains uncertain, with domestic demand still weak, and some firms still struggling to access finance.
Of the 461 manufacturers surveyed, 31% said output rose during the three-month period, while 20% said it fell. The resulting balance of +11% is the strongest figure since January 2007 (+19%).
Export orders rose for the first time since January 2008, boosted by the relative weakness of Sterling and improving global demand. 30% of firms said exports grew during the quarter, while 24% reported a fall, giving a balance of +6%. Exports are expected to grow more strongly in the next quarter (+13%), and firms are the most optimistic about export prospects for the coming year (+19%), since July 1995 (+21%).
Firms are continuing to de-stock, but at a slower rate, which also helped lift output. A balance of -11% indicated that stocks of finished goods fell in the quarter, compared to a balance of -29% in the October survey.
Domestic demand, however, was weaker than expected with 18% of manufacturers reporting a rise, and 26% a fall, giving a rounded balance of -9%. That compared with a balance of -16% in October. Total new orders were broadly unchanged (+1%).
Ian McCafferty, the CBIs Chief Economic Adviser, said:
After nearly two full years of falling output, manufacturers are seeing a return to modest growth, thanks in part to improved overseas demand and much slower stock reductions.
It is encouraging that the weaker pound is now providing firms with some respite as global demand improves. Exports are rising for the first time in two years, as UK-made goods are looking more attractive in overseas markets. Manufacturers are also feeling upbeat about export prospects for the year ahead.
However, the manufacturing sector is not out of the woods. With domestic demand still weak, and credit remaining constrained for some companies, firms expect growth to be more modest in the next quarter. This underlines our view that the UKs economic recovery will be slow and protracted.
The availability of finance remains a concern, and is cited by 13% of firms as a factor likely to limit output, and by 12% as likely to limit export orders.
Despite that, sentiment about the overall business situation is continuing to improve, with a net 12% more optimistic than three months ago.
The rate of job losses across the sector is slowing. A balance of -13% indicated a drop in staff numbers during the quarter, an improvement on Octobers balance of -34%.
Investment intentions for the year ahead are stabilising. Firms are planning on spending more on training and retraining (+11%) and on innovation (+15%). Investment in buildings will be cut back further (-18%) and little change is expected in spending on plant and machinery (+1%).
Domestic prices are expected to rise for the first time in six quarters (a balance of +8%). 66% of firms report that they are working below capacity, compared to 76% in October.