Optimism returns to UK manufacturing sector, as orders rise at fastest pace since 2014

Optimism among UK manufacturers grew at the fastest pace in two years in the quarter through to January, while domestic orders at the fastest pace since 2014, according to data released by the Confederation of British Industry (CBI) on 25 January.

The latest CBI Industrial Trends Survey showed domestic orders rose 16% in the three months to January, recording the fastest pace of growth since July 2014, while exports rose only 5%, falling a long way short of expectations for a 17% increase.

Over a quarter of the 461 firms surveyed were more optimistic about the general business situation than three months ago and 12% were less optimistic, giving a rounded balance of +15%, the highest since January 2015.

Domestic and exports orders are expected to be the main drivers of demand growth over the next three months, while expectations for output growth are at the highest since July 2014.

Meanwhile, the weaker pound continued to be a double-edged sword for the sector, as unit costs rose at their highest pace in over five years. The report found average domestic prices, export prices and unit costs are all expected to rise at their strongest rates since April 2011.

Conversely, however, sterling's decline saw manufacturers report a strong rise in competitiveness within the EU, while the rise in competitiveness in non-EU markets at a survey high.

"UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years," said CBI chief economist Rain Newton-Smith.

"The weaker pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers."

Meanwhile, the increase in production has led the number of firms citing capacity expansion as an investment driver to a record high.

As result, the proportion of manufacturing companies planning to increase investment in product, process innovation and training over the next 12 months rose at the fastest pace in two years.

Earlier this week, the government unveiled its new Industrial Strategy, which is designed to help address sector-specific challenges and opportunities for companies. Newton-Smith added the plan was crucial to support the manufacturing sector, insisting businesses were ready to co-operate with Number 10.

"The new Industrial Strategy can support our manufacturing base by offering a shared long-term vision for the key sectors and regions of the economy and evidence-based plans for government and business collaboration," she said.