The CBI's interpretation of its latest survey was coupled with its new forecast for the UK economy, which warned that the deteriorating outlook in key overseas markets may offset Britain's improved competitiveness and weaken export growth.
The CBI's March survey showed that, although manufacturers' optimism over output in the next four months rose to its highest point since May last year, the increase was the smallest since December.
Manufacturers reported that their order books in March improved for the fifth successive month to the highest level since June 1990, when the recession began. The shrinking value of sterling meanwhile appeared to foster a further improvement in export orders.
Howard Davies, CBI director-general, said that the March survey, largely conducted before the Budget, provided a further indication that the economy may be growing again. 'But the weakening situation in our major European markets will hold back (export) progress. Although the trend is in the right direction, we cannot yet be sure that the recession is over.'
Of the 1,413 companies polled, 26 per cent thought their output would improve in the next four months, while 16 per cent expected production to dip. The resulting positive balance of 10 per cent was the highest since May 1992, but was barely above the 9 per cent recorded in February and the monthly increase was significantly smaller than any in the previous four months.
Inflation expectations remained subdued with a balance of 8 per cent expecting prices to rise, compared with 12 per cent in February and 2 per cent in March 1992.
The survey also suggested that further rises in demand may continue to be met from stocks rather than higher output, at least for several months more. A balance of 18 per cent thought stocks were more than adequate.
Based on the latest survey results and the impact of the 16 March Budget, the CBI forecast that national output would rise by 1.4 per cent in 1993, double its prediction in November. The CBI was previously one of the most pessimistic forecasters. Yesterday it said it upgraded its prediction largely because of better consumer spending and investment in the final quarter of 1992.
The improved forecast also reflected a better export performance after sterling's depreciation since last September. In 1994, the CBI expects the recovery to accelerate to show 2.4 per cent growth.
Annual growth in the narrow measure of money supply M0 - largely notes and coins - is set to accelerate further above the 4 per cent ceiling of the Chancellor's 'monitoring range' this month. With one week's Bank of England figures for notes in circulation still to come, M0 appears to be rising at an annual rate of 4.9 per cent, up from 4.2 per cent in February.