Monday 20 February 2017 12:09 pm

Demand in UK industry reaches two-year high despite price rises says CBI

Demand for UK-manufactured goods rose to a two-year high in the three months to February with output expectations rising to their highest since September 2013, according to a survey of industrial firms.

More than a quarter of the industrial firms polled reported total orders above normal levels, according to the Confederation of British Industry (CBI).

This led to the strongest demand since February 2015, beating economists’ expectations. More than a third of businesses reported a rise in output volumes, with 43 per cent expecting output to rise even further over the next three months.

The balance of export growth dipped, however, despite an anticipated boost for exporters after the devaluation of sterling.

Sterling has fallen in value by around 17 per cent against the US dollar since its pre-referendum peak, sending input prices up by 20.5 per cent year-on-year. Firms expect prices to rise further over the next quarter, with an almost six-year high in inflation expectations.

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.”

The survey results reflect a strong end to 2016 for the industrial sector, with total production expanding by 4.3 per cent in December. However, some economists expect a hit to demand if prices rises dent consumer spending.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The balance suggests that the momentum seen in manufacturing output in late 2016 has been sustained so far this year. The upturn, however, remains worryingly dependent on domestic demand.”

He added: “It remains difficult to see how domestic demand will maintain its momentum when producers push through even bigger price rises.”