Manufacturers turn positive

MANUFACTURING confidence has bounced back since the start of the year despite the absence of a revival in orders, research showed today.

Manufacturers expect to lift production at the fastest rate since last summer, even though they regard order books as weak, according to the CBI's Monthly Industrial Trends survey.

Some 38% of firms said they expected output to rise in the next three months, against 19% who said it would fall. The balance of 19% indicates the strongest output expectations since August 2004, the survey showed.

Meanwhile, 20% said their order books were above normal, but 30% said they were below. The balance of minus 10% compares with minus 13% in January.

CBI head of economic analysis Doug Godden said the data represented a mixed picture. 'Manufacturers are more optimistic about future production, but that is not based on any clear recent improvement in order books, suggesting they are relying on demand improving in the near future,' he said.

The CBI also published its quarterly economic report, forecasting growth in the UK of about 2.7% this year and 2.6% in 2006.

It predicted a slowdown in consumer spending growth this year but said sustained strength in Government spending and investment should partially offset the negative impact on growth in gross domestic product (GDP).

The report also highlighted the impact of Government activity in driving labour market tightness, in turn underpinning inflation and interest rates.

The CBI said it was sticking to its forecast of a further interest rate rise to 5% in the late spring.

CBI chief economic adviser Ian McCafferty said the economic outlook for 2005 and 2006 remained healthy. He added: 'The economy is now having to learn to live with full employment and the risks of a pick-up in core inflation are rising.'