Manufacturing sector set for further growth but cost pressures remain high says CBI

THE UK’s manufacturing recovery is firmly on track and looks set to continue with more than a third of companies reporting increases in output during the last three months, according to latest data from the CBI.

The business group said the recovery was being generated by both strong domestic demand and a growth in export orders, with the rate of growth at its highest for 16 years.

However, in common with other recent surveys, the CBI has warned inflationary pressures continue to intensify as companies struggle to avoid passing on the burgeoning cost of raw materials by raising the price of goods at the factory gate.

Of the 451 manufacturers around the country that responded to the April Quarterly Industrial Trends Survey, 36% said they had seen an increase in output in the first quarter, while 15% said it had fallen, giving a rounded balance of +20%.

Domestic demand rose 15% and exports 24% – the fastest rate of growth since April 1995.

In a further boost to the sector, the survey concludes demand and production are expected to continue rising over the next three months, with 22% of firms saying they expect output growth will be sustained at a similar pace to this quarter (+22%). At the same time, manufacturers expect domestic and export orders to continue to increase over the next quarter (+11% for both), at rates well above their long-run averages.
 
Output has also been boosted by rapid restocking over the past quarter. Companies have built up inventories of raw materials (+13%), work in progress (+10%) and finished goods (+17%) to the greatest degree since July 1979 (+13%), January 1995 (+10%) and July 1977 (+19%) respectively.
 
In line with the ongoing recovery in the sector, 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%) was the highest since January 1974 (+21%). The outlook for employment over the next quarter is also positive, with a balance of +7% of firms expecting to recruit.
 
However, the cloud on the horizon remains escalating costs. More than half the firms surveyed said their costs had risen during the period.

David Martin, manufacturing sector expert at PwC in the Midlands, said: “It is good to see another strong performance from the manufacturing sector, caused primarily by export growth helping to boost overall output for the quarter.

“This demonstrates that manufacturing businesses are best placed to provide a platform for the economic recovery, driving new job creation and further optimism for the future.

“As certain commodity prices continue to rise to record levels, driving input inflation, it will be interesting to see if manufacturers can sustain this strong growth through the current quarter. Adding to these cost pressures, supply chain issues resulting from the Japanese earthquake and tsunami are also beginning to use up existing inventories sourced from the Far East.”