Strong demand for UK goods but Sterling still a barrier

The latest Confederation of British Industry (CBI) Industrial Trends Survey has revealed that demand for UK-manufactured goods strengthened in the three months to February, with total order books improving further.

The survey of 461 firms found that total orders reached a two-year high, with export orders remaining stable and above the long-run average. The strengthening in demand was led by the mechanical engineering and metal products sectors.

27% of businesses reported total orders to be above normal and 19% said orders were below normal, giving a balance of +8%, the highest since February 2015 (+10%). 19% of businesses reported export orders to be above normal and 29% below, resulting in a balance of -10%.

Output growth remained robust in the three months to February and is expected to increase at a faster pace over the coming quarter, with expectations at their highest since September 2013.

The depreciation of the Sterling is set to continue to have an impact on the cost of raw materials as firms expect prices to rise strongly over the next three months, with expectations at their firmest since April 2011.

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.

“With cost pressures building, businesses will be looking to the Budget for relief from business rates, specifically bringing forward the adjustment from RPI to CPI.

“Over the longer term, investment in education and innovation as part of the Government’s industrial strategy will really need to deliver in the face of increasing political headwinds.”