Manufacturers' order books bouncing back, says CBI

Hopes were raised of a better 2013 for Britain's depressedmanufacturing sector when the CBI reported that order books bounced back this month.

In its latest health check of industry, the employers' organisation said firms had reported more work in the pipeline but remained cautious about the outlook for production.

The balance of firms reporting order books below normal for the time of year improved from -21 percentage points in November to -12 points in December. The CBI said 30% of companies said order books were below normal while 18% said they were above normal.

Weak order books had made industry gloomy about the prospects for output in November, with a balance of 9 percentage points expecting to cut production over the next three months.

In the latest industrial trends survey, the CBI said as many firms expected to raise output as to cut it over the next quarter. Even so, the employers' group said this was a less buoyant picture painted by manufacturers than in October, when a balance of +12 points expected to raise output.

The survey pointed to investment goods sectors – especially mechanical engineering and aerospace – being the main drivers of growth, but half of the 12 main manufacturing sub-sectors are pencilling in falls, including chemicals and electrical engineering.

Price pressures for industry, which according to official figures saw a big drop in output in October, are on the rise. The CBI said inflation expectations were at the highest since March, with all but two of the 11 manufacturing sub-sectors reporting an increase.

Anna Leach, head of economic analysis at the CBI, said: "December's survey reports a welcome improvement in manufacturers' order books and their expectations for output. Even so, they remain hesitant in predicting further output growth and are keeping stock levels low. Conditions in the sector and the wider economy are likely to remain fragile until global conditions improve over the course of 2013."

Howard Archer, chief European economist at IHS Global Insight, said: "A significantly improved December CBI industrial trends survey offers some grounds for optimism for manufacturers going into 2013 after they suffered a pretty torrid end to a largely difficult 2012. However, domestic and international conditions clearly remain challenging for manufacturers and they are unsurprisingly cautious over the outlook."

Samuel Tombs, UK analyst at Capital Economics, said: "The small improvement in the UK CBI industrial trends survey in December suggests manufacturing output might have stabilised towards the end of the year."