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UK manufacturers are feeling broadly upbeat, but the weaker pound has forced them to jack up their output price expectations to their highest level in almost five years, while exports are failing to blossom, according to the CBI.
The business lobby group’s monthly industrial trends survey showed 38 per cent of respondents expect to raise prices over the next quarter, compared to only 6 per cent expecting cuts.
The CBI’s survey echoes official figures released by the ONS last week, which showed producer price inflation – an early gauge of inflationary pressures that may be passed on to consumers later – also hit its highest level in five years in January. The UK’s annual inflation rate hit 1.9 per cent in January.
However, while the weakness of sterling has driven up companies’ costs, it has done little to boost exports, despite theoretically making British products cheaper for foreign buyers. The survey reported a balance for export orders of -10.
The number represents the difference between the percentage of firms reporting higher than normal orders and the percentage reporting lower than normal orders.
The continued weakness of exports came despite positive overall results. The CBI’s overall order book survey gave a reading of +8, its second consecutive month in positive territory.
In total, 27 per cent of businesses reported above-average order levels, with 19 per cent reporting worse than normal levels.
Survey respondents were also feeling optimistic about the months ahead, with expectations at their highest level since September 2013. Forty-three per cent of respondents said they expect to see an increase in growth over the next three months, compared to only 10 per cent expecting a decline.
Rain Newton-Smith, CBI chief economist, said:
Stronger demand and production is good news for UK manufacturers, though the weaker pound continues to push up input costs and this is now feeding through to output price inflation expectations.
With cost pressures building, businesses will be looking to the Budget for relief from business rates, specifically bringing forward the adjustment from RPI to CPI.
Howard Archer, chief UK and European economist at IHS Global Insight, said the survey “bodes well for manufacturing output in the first quarter at least”, but the rising cost pressures mean “there are significant challenges for the sector that look likely to intensify as the year progresses”.