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Confidence grows in manufacturing

The manufacturing sector is making a tentative recovery with exports up and confidence at the highest level for a year, the CBI’s industrial trends survey for June suggests.

According to the data, 31% of manufacturers think output will improve over the next three months compared to just 17% who believe it will decrease. The gap between these two figures, of 14%, is the largest recorded by the poll since February 2005.

The upturn appears to be fuelled by a growth in UK goods exported for consumers, while the amount of manufacturers reporting a rise rather than a fall in the level of total export orders fell from 0 to -3, the survey revealed.

The balance of manufacturers who reported a rise in total orders during June fell to -12 from April’s level of -11 but is still considerably higher than the long-term average of -22, indicating that domestic demand is rising.

“Outlook for manufacturing is positive in the short term, driven by export growth and continued strong performance in the eurozone,” said Ian McCafferty, the CBI’s chief economic adviser.

But the CBI also warned that hopes of a long-term recovery to the manufacturing sector may be misplaced. “Longer term prospects are more uncertain for the sector,” said McCafferty, “There are some signs of a US slowdown, more volatility in financial markets and profit margins are still under pressure. Prospects for 2007 look rather more daunting.”

The main concern in the sector centred on pricing pressures caused by rising costs of metal and crude oil, which rose by 68% and 30% in the 12-month period to June.