Figures show recovery in UK manufacturing

Fresh signs of a recovery in the British manufacturing sector were revealed today as a report showed optimism at its highest level for more than a year.

The latest CBI Industrial Trends Survey suggested growing confidence in the sector in August despite enduring another month of weak demand.

In response to questions on the expected volume of output over the next three months, 32% of UK manufacturing firms predicted a fall, while 27% forecast a rise - the resulting balance of minus 5% represents a slight decline in activity but is the least negative prediction since June 2008.

Manufacturers' optimism came despite continued very weak demand for the sector, with 54% of firms reporting that order books were below normal.

While this was a slight improvement on the 17-year low seen in July, it marked the seventh consecutive month that orders have stayed in negative territory.

The weakness of sterling has also failed to give the sector a boost, with a balance of 48% reporting exports to be below normal.

Vicky Redwood, UK economist at Capital Economics, said the report "provides further evidence that the manufacturing recovery is picking up pace".

However, she warned that the improvement seems almost solely driven by the fact that companies have run their stocks down to levels more suited to low demand.

"There are still precious few signs of the rise in underlying demand that will be necessary if output is to start posting decent and sustained rises," she said.

Richard Lambert, CBI director-general, said firms are facing very low levels of demand both in the UK and abroad and order books looked "anaemic".

"More positively, expectations for manufacturing output over the coming three months are the least negative in over a year," he said.

"This is partly because many firms have run their stock levels down quite aggressively over the summer, so some manufacturers are now looking to raise production.

"It looks like destocking in the manufacturing sector may be coming to an end, which offers a further sign that the UK economy is starting to stabilise."

The report comes after recent positive official data suggesting an upturn for the beleaguered car industry had helped the manufacturing sector.

The latest figures from the Office for National Statistics (ONS) showed manufacturing output rose 0.4% in June - the biggest increase since January 2008.