Export-led recovery is on track, reports CBI

British industry has made a confident start to 2011, according to the latest survey from the Confederation of British Industry (CBI), with robust export performance adding to evidence of a broader economic "rebalancing".

However, there is also mounting evidence that manufacturers are having to pass a rapid rise in import costs on to consumers – with the acceleration in imported inflation at it highest since 1975, the year that recorded the highest retail inflation in modern British history.

The CBI's Industrial Trends Survey suggests that, while the recovery in manufacturing is continuing, both total and export order books fell back, though domestic demand is proving much more sluggish to pick up than that from abroad. Still, monthly data is volatile and the CBI claims the trend is firmly positive, saying: "The manufacturing recovery is well on track, driven primarily by export orders."

In line with the strengthening in orders and output, sentiment has also improved.

Such trends were confirmed in data from the Society of Motor Manufacturers and Traders. Car production for the UK market fell by 29 per cent last month, partly because last year's figures were flattered by extra demand from the scrappage scheme: but car exports surged by a fifth. Eighty-six per cent of British car production is now earmarked for export. Total output, at 1.4 million vehicles, is 200,000 units below pre-recession levels.

But inflation is the factor that will concern policymakers at the Bank of England. The balance of companies expecting to put prices up rose from plus 16 to plus 31 In January, the largest month-on-month increase since the inception of the series in 1975, and adds to a growing picture of mounting inflationary pressure throughout the economy.

Ian McCafferty, the CBI's chief economic adviser, said: "Manufacturers have come under intense pressure to pass on rising costs: they have increased prices markedly in this quarter, and expect to raise them at an even faster pace over the next three months. This will drive further inflationary pressure in the wider economy."