Manufacturers have seen their first increase in new orders since 2004 despite strong rises in oil and metals prices, the UK's largest employers' group said yesterday.
The CBI said its latest survey showed factories had reported a rise in optimism, output and the prices they had charged in the latest quarter.
It said strong growth in domestic demand for capital goods - the first for two years - and a slower decline in intermediate goods such as chemicals had offset a fresh decline among consumer goods firms. However, it warned that the record surge in energy and commodity costs could extinguish a modest recovery in Britain's manufacturing sector.
The CBI said oil prices had risen almost 10 per cent since it compiled its survey of almost 700 firms, while commodities had risen by an average of 11 per cent.
Ian McCafferty, its chief economic adviser, said: "Clearly the continued inexorable rise in energy and commodity costs is a concern to the UK economy.
"It could be that the impact may well start to be felt towards the end of this year and were we to see higher prices, growth around the world could disappoint the buoyant expectations and clearly manufacturing would be affected."
He said the CBI was considering cutting its growth forecasts for next year when it publishes its latest projections next month
Mr McCafferty also said the "unrelenting" rise in energy and commodity costs had dented companies' profits, forcing them to lay off the largest number of staff for more than a year. It said factories cut 34,000 jobs in the first three months of the year, the biggest cutback since the first quarter of 2005 and bringing total jobs shed by manufacturers in the past 12 months to 122,000.
The CBI said profits were squeezed as rises in input costs outpaced the rise in prices charged. "In the face of these unprecedented costs, manufacturers have continued to make job cuts and focus any new investment on improving efficiency in a bid to rescue profit margins," Mr McCafferty said.
Separately the Construction Products Association said soaring raw materials prices would add £1.3bn to the cost of major infrastructure projects this year. John Colley, its president, warned it could add £500m to budgeted costs for public sector projects.
The CBI said it believed manufacturing grew 0.2 per cent in the first quarter, implying the industrial sector had made a positive contribution to growth.
The Office for National Statistics publishes its first estimate of GDP growth this morning.Reuse content