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Exports drive UK manufacturing improvement, but pricing pressures remain

17 May 2010

Foreign demand for UK manufactured goods has strengthened further, with export order books above par for the first time in over two years, although overall demand is still lagging, warns the CBI.

Responding to the latest CBI monthly Industrial Trends Survey, 27% of manufacturers said that export orders were above normal, while 24% said they were below. The resulting balance of +3% shows that export orders are no longer sub-par, having improved considerably on April (-16%). This month's result is the first positive survey balance since March 2008 (+3%).

In comparison, total order books are not quite so healthy, reflecting the slower recovery in domestic demand. However, the balance of 18% of firms reporting orders to be below normal was also a significant improvement on April (-36%), and orders are now back in line with the long-run average.

With demand improving, manufacturers expect to raise output firmly during the next three months, with a net 17% expecting production to rise, which is slightly stronger than April (+14%).

However, inflationary pressures remain significant and domestic prices are expected to rise over the next three months, with a balance of 14% of firms expecting prices to head upwards, similar to levels of the past two months. Ian McCafferty (pictured), CBI chief economic adviser, said:

"The weak pound has made UK exports more attractive, and manufacturers are benefiting from the pick-up in world trade. This is helping the recovery in manufacturing, and a slightly stronger rise in production is predicted in the coming months. Firms also expect to raise prices again over the coming three months because of higher energy costs and import prices."

Stock adequacy was similar to the previous month. A net 10% of firms reported that stocks are more than adequate to meet demand, with the survey balance remaining below its long-run average.

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