Upbeat forecast for UK manufacturing

The recovery in the manufacturing sector remains well on track, a business group said today, but the industry continues to predict a surge in factory-gate prices.

The recovery in the British manufacturing sector remains well on track, a business group said today, but the industry continues to predict a surge in factory-gate prices.

Manufacturing firms have forecast a strong rise in production over the next quarter, supported by strong export orders, according to this month's industrial trends survey from the CBI.

But as total order books continued to strengthen - indicating a rise in domestic demand - manufacturers warned price pressures remained intense as an increased majority of firms expect to raise domestic prices over the next three months.

The figures will ease fears that the manufacturing sector recovery was derailed by the severe weather at the turn of the year, but are likely to give a headache to the Bank of England, which is struggling with stubbornly-high inflation.

Ian McCafferty, CBI chief economic adviser, said: "The outlook for UK manufacturing output growth is very encouraging. Firms predict further acceleration in production growth over the next quarter, supported particularly by a strengthening in export order books."

He went on: "However, there is still worrying evidence of strong inflationary pressures in the pipeline, with manufacturers once again expecting to raise prices sharply in the coming quarter.

"Firms' predictions of price rises are now very close to their last peak in the summer of 2008."

Manufacturers have benefited from healthier demand at home and overseas, improved competitiveness from the weak pound and a rebuilding of stocks, which were slashed during the recession.

A number of surveys showed this resurgent period was rattled by the Arctic conditions which swept the UK in December.

Howard Archer, chief UK and European economist at IHS Global Insight, said the upbeat survey increased pressure on the Bank of England to hike interest rates sooner rather than later.

He said: "The good news for the economy is that the CBI survey indicates that the manufacturing sector currently remains in very good shape and is set for robust expansion in the first quarter and very possibly beyond.

"The bad news for the Bank of England is that the survey shows elevated and increasing price pressures."