Manufacturers are more optimistic as orders rise

Small and medium-sized manufacturers are striking a much more optimistic note than the rest of the economy, with the Confederation of British Industry revealing today that the sector saw orders grow in April at the fastest rate for 16 years.

The CBI said orders were rising quickly from both domestic and overseas customers, and that output continued to rise solidly as a result. It also revealed that companies were increasingly optimistic about the months ahead. However, cost pressures have become even more intense, with the rising price of raw materials presenting a serious problem for many.

Overall, orders in April rose the most since April 1995. Some 39 per cent of companies surveyed by the CBI said their domestic orders rose last month, while 23 per cent saw a fall, a positive balance of 16 per cent. For export orders, the corresponding numbers were 37 per cent and 14 per cent, a positive balance of 23 per cent.

The improvement will be welcomed by ministers anxious to see a rebalancing of Britain's economy towards manufacturing and industry, as will the evidence that the increases in orders are prompting a growing number of companies to take on new staff. A balance of 18 per cent of companies said production rose last month, while a balance of 16 per cent made additional hirings, the highest figure since April 1995.

However, the global boom in commodity prices is now being felt acutely by small British manufacturers. A positive balance of 53 per cent of companies said costs rose last month.

Domestic prices rose at the fastest rate since April 1995, while export prices rose more quickly than at any time since the CBI began its monthly surveys of the sector in 1988.

Lucy Armstrong, chairwoman of the CBI's small and medium enterprise council, said the survey presented a mixed picture. "Smaller manufacturers are enjoying strong demand for goods at home and abroad, underpinning robust growth in production, while headcount has increased for the third consecutive quarter as firms try to keep up with demand, and output is expected to rise again in the coming months," Ms Armstrong said.

"However, inflationary pressures remain a dark cloud, with rising oil and commodity prices pushing up the cost of production and eating into profit margins."