Manufacturers see first rise in new orders for a year

Manufacturers started the summer in buoyant mood following the first rise in new orders for a year, according to a survey by the business group the CBI.

Firms increased production and employment as the outlook for the sector improved in the three months to the end of July.

The quarterly industrial trends survey also found that firms anticipated a further modest rise in orders and output in the coming three months, while expectations for growth in new domestic orders were at their highest since April last year.

However, the improving situation, which is also reflected in other surveys of manufacturers, failed to persuade firms to increase investment in new equipment.

The CBI said planned capital expenditure on plant and machinery over the next 12 months had deteriorated slightly. "When asked about factors likely to limit investment, manufacturers most often cited uncertainty about demand, which was of slightly greater concern than usual," the CBI said.

The government has waited several years for a strong boost to investment after a severe slowdown in the wake of the financial crash. But the eurozone crisis and the government's own austerity measures have delayed the expected return of consumer confidence, widely seen as a precursor to a rise in investment spending.

The Office for Budget Responsibility, which monitors the economy for its impact on the government's finances, has pencilled in a recovery in investment over the next two years to underpin a return to average growth levels.

Manufacturers' intentions to invest in plant and machinery dipped -1% compared to -9% in the previous quarter.

The survey's main total orders balance picked up from -18 in June to -12, which is its strongest level since last December. Striking an even brighter note, 32% of firms reported an increase in total new orders against 27% that said they decreased, giving a balance of +5%.

Samuel Tombs, UK economist at the consultancy Capital Economics, said the sector's recovery was gathering momentum, though at a slower pace than the services sector.

"This improvement brings the CBI's survey in line with the relatively upbeat tone of the other surveys. But with demand for exports weak in the UK's largest market, the eurozone, and domestic consumers' real pay still being squeezed, it is hard to see how the manufacturing sector's recovery can gather much more pace in the near term," he said.

Stephen Gifford, the CBI's director of economics, said manufacturers had seen a pick-up in activity across the board, but agreed there was still a degree of nervousness around the boardroom tables of many firms.

"Optimism in the sector has risen again, and demand conditions are expected to improve further in the coming three months," he said.

"The gentle rise in confidence is being reflected in firms' headcount, which is rising at the fastest rate in a year.

"But manufacturers remain concerned about political and economic conditions abroad limiting export orders, which is likely to reflect heightened uncertainty over the global economic outlook."

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