Investments to increase as manufacturing booms

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Britain's booming manufacturing sector is set to ramp up investments this year but the money will flow overseas unless the Government improves the business environment, a leading lobby group will warn today.

Despite a slight dip from the previous quarter, both industrial output and orders remain at near-record growth levels, well above the long-term average, according to the quarterly poll by the EEF manufacturers' organisation. Strong exports are driving the gains, with a balance of 24 per cent of respondents reporting rises in the first quarter, and of 28 per cent expecting the trend to continue into the second.

The impact of January's VAT rise and concerns about public spending cuts was weaker than expected. A balance of 13 per cent reported a rise in UK orders in the three months to the end of February, and 25 per cent see further increases in the quarter ahead.

Employment intentions are also at record levels, with a balance of 29 per cent of surveyed companies reporting recent recruitment.

"The December to February survey shows another strong quarter for the manufacturing sector," said the EEF's chief economist, Lee Hopley.

The resurgent global economy is the most immediate challenge for the sector, with price inflation already starting to be felt and both domestic and export prices expected to rise in the coming quarter.

But the biggest threat to the longer- term health of British industry is from the debate about where to target the investment finally coming through on the back of the recovery. "It is no longer a question whether companies will invest, but there is a real question about where," Ms Hopley added.

Last week, the EEF called for a "growth mandate" in the forthcoming Budget. Concrete moves by the Chancellor on a range of issues, including tax and regulation, are needed to ensure investments are made in Britain, rather than in more business-friendly overseas markets, the EEF said.