"Encouraging signs" for manufacturing recovery

Manufacturers have received another welcome boost this month with news that a Confederation of British Industry (CBI) survey has revealed that manufacturing output is expected to stabilise in the coming months.

According to the CBI's monthly 'Industrial Trends Survey', manufacturers have indicated for the second consecutive month that not only is confidence in the industry up, but output is set to turnaround and reverse recent downward trends.

The survey of 896 leading manufacturing concerns concludes that expectations for the next four months will be stable, with 26 per cent of manufacturers expecting an increase and 24 per cent expecting a fall. A differential balance of plus two is in marked contrast to recent marks of a differential of minus 15.

However, whilst the survey reveals reasonable confidence in the sector, warning signs still persist in fundamental area of business – the order book.

Fourteen per cent of manufacturers have revealed that total orders were above normal, whilst 46 per cent said they were below. The balance of minus 32 per cent compares with minus 29 in February and minus 31 in January – suggesting that the long-term assessment continues to be perilous.

Export order books also reveal no serious reduction in prospects with a balance differential of minus 39, in comparison to January's figure of minus 42. The three-point improvement in export orders is in line with the modest improvement in the world economy.

Ian McCafferty, CBI Chief Economic Adviser, said: "There is some encouragement in this survey but manufacturers are still finding life difficult. The beginnings of a global turnaround have led to a slight pick up in export orders, a welcome revival after the three-year low reported in November, but this was offset by the slight fall off in domestic orders. Overall, while we are probably now past the worst, the recovery in manufacturing is still likely to be only gradual."

Elsewhere, the Chartered Institute of Purchasing and Supply (CIPS) has also revealed the UK manufacturing sector could be pulling out of recession. The CIPS index of manufacturing output rose to 50.1 in February, up from 46.5 the month before.

The head of the CBI, Digby Jones, re-issued his call for Trade and Industry Secretary Patricia Hewitt to create the right environment for manufacturing to stage a recovery.

The CBI says that government should reduce red tape regulations that apply to manufacturers, and should develop a tax framework which promotes investment in research and development.

(GMcG)