Output hits two-year low, CBI warns

Output from UK factories has hit its lowest level for two years while rising energy costs are squeezing their profit margins, the CBI said today.

Small- and medium-sized manufacturers (SMEs) reported the third consecutive quarterly fall over the three months to October, according to a survey of almost 700 companies.

Just 20 per cent increased production compared with the 35 per cent who saw it fall, leaving a balance of minus 15 per cent - the worst since October 2003. At the same time, orders fell for the third successive quarter with a balance of 15 per cent indicating a decline as the consumer spending slowdown spread into other areas of the economy.

Looking ahead, firms did not expect any improvement in the fourth quarter of 2005. With demand falling, the rise in oil prices left companies reporting a rise in their average unit costs.

Despite this factories continued to cut prices, though to a lesser extent than they had forecast at the time of the previous survey in July.

However, the gloomy tone of the survey contradicted the latest official figures which showed a rise of 0.6 per cent over the three months to August.

Meanwhile, a separate survey showed business confidence had enjoyed a healthy rebound since July with companies resilient in the face of high oil prices and the consumer downturn.

An optimism index from the business advisers BDO Stoy Hayward which acts as an indicator of GDP growth two quarters ahead rose from 100.4 in July to 101.2 in October, implying economic growth of just over 3 per cent in the second quarter of next year.