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Manufacturers predict strong rise in production, but inflationary pressures pick up – CBI survey

UK manufacturers’ expectations for output growth are at their strongest for a year, but firms also expect to have to raise prices significantly, the CBI said yesterday (Tuesday).

Of the 436 manufacturers responding to the CBI’s latest monthly Industrial Trends Survey, 39% believe that output would rise in the next three months, while 15% expected that it would fall. The resulting balance of +24% is the strongest since March 2011 (+27%).

Order books in March remained well above their long-run average, and their levels of late last year, albeit a little lower than last month. While 18% reported total orders were above normal, 26% said they were below. The resulting balance of -8% is stronger than the long-run average for this measure (-17%).

Similarly, at -11%, export demand also weakened, but remained considerably above its long-run average (-21%).

However, expectations for output price inflation have picked up. A balance of +24% of firms expect to raise output prices in the coming quarter, the highest since June 2011 (+27%).

Ian McCafferty, CBI Chief Economic Adviser, said:

“The recovery in the manufacturing sector seems to be building some momentum. Firms again expect a strong rise in output over the next three months, on the back of above-average order books.

“However, expectations for output price inflation have also moved higher, most probably reflecting the recent rise in oil prices.

“Any further rise in oil prices would be a significant concern, given the additional cost burden this would place on UK manufacturers and the knock-on effects it could have on the nascent recovery.”

Stocks of finished goods remained above adequate (+17%). The balance has changed little since November 2011, staying broadly in line with the long-run average (+14%).

Note to Editors:

1. The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi, the CBI communicates the British business voice around the world.

2. The March 2012 CBI Industrial Trends Survey was conducted between 22 February and 14 March. 436 manufacturing firms replied.

3. During the survey period, the pound averaged euro 1.19 and $1.58 and Brent Crude $124.13 per barrel, compared with euro 1.20, $1.58 and $114.47 per barrel in the February survey period.

Distributed Energy Future Trends