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Manufacturing continues to thrive

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The recovery in the manufacturing sector is maintaining its momentum, according to a new report.

In its latest quarterly Industrial Trends Survey, the CBI said that strong domestic and export orders growth has boosted factory output.

But the business group also warned that inflationary pressures are continuing to build up as a result of firms passing on the burgeoning costs of raw materials.

The survey took in over 450 manufacturers. Some 36 per cent of respondents reported that they had seen an increase in output in the last three months, while 15 per cent recorded a fall, giving a balance of +20 per cent.

Much of the growth was fuelled by an upturn in both domestic (+15 per cent) and export (+24 per cent) orders. The rates of growth were at their fastest since April 1995.

The future looks equally bright, according to the CBI figures. Demand and production are expected to continue rising over the next three months, with firms forecasting that output growth will be sustained at a similar pace to this quarter (+22 per cent).

At the same time, manufacturers believe that domestic and export orders will also increase over the next quarter at rates well above their long-run averages.

With the boost in output has come a corresponding rise in employment. Manufacturers took on more staff for the third quarter running. The net number of companies saying that they had added to their workforces in the last three months (+15 per cent) was the highest since January 1974. The outlook for employment over the next quarter is also positive, with a balance of +7 per cent of firms expecting to recruit.

The picture is not universally rosy though. Production costs climbed steeply during the last quarter.

Over a half of respondents (53 per cent) said that average unit costs had gone up, the highest proportion since October 2008. A consequence of this is that firms have pushed up domestic and export prices by 29 per cent and 30 per cent, making the rates of inflation the strongest since April 1995.

What’s more, price pressures look all set to persist. Firms are anticipating that costs and prices will spike sharply again over the next three months.

John Cridland, the CBI’s director-general, commented: “The manufacturing recovery remains firmly on track. Strong demand at home and abroad and rapid restocking over the past quarter have led to another solid rise in production, with growth expected to continue over the next quarter.

“It is also good news that manufacturers are continuing to take on more staff to handle the increased workload.

“But production costs have jumped markedly during the last three months, rocketing ahead after a full year of already rapid cost inflation. This is unsurprising given the recent surge in oil and other commodity prices.”

Lai Wah Co, the CBI’s head of economic analysis, added: “Perceptions of order book levels have dipped in the monthly data, but the readings are still well above the long-run average. The quarterly questions show that manufacturing orders have risen strongly over the past three months and output growth remains robust.”