CBI figures spark slowdown fears

Further signs of a "worrying" slowdown in the manufacturing sector emerged today amid warnings that fresh price hikes are on their way to consumers.

Manufacturers enjoyed their strongest growth for 16 years over the past three months, according to a survey by the CBI business lobby group, but there are indications that its pace could slow.

A balance of minus 11% of companies said order books were higher than normal in April, compared with a positive reading of 5% a month ago, casting doubt as to whether they can continue to provide the same level of support to the UK's economic recovery.

Companies also warned they have increased their prices to the UK at the fastest rate since 1995 as they pass on higher costs, which have been driven upwards by the soaring cost of oil.

This spells bad news for households, whose wages are already failing to keep up with rising prices of every-day items, and suggests that inflation, which slowed to 4% in March, could come under further pressure.

Chris Williamson, chief economist at Markit, said: "This is not a good start to the second quarter.

"The latest CBI survey for April shows an unwelcome picture, but one that is beginning to sound all-too familiar, of rising price pressures and fragile demand.

"There are worrying signs from a slump in orders in April and ongoing price pressures, with price expectations rising to the highest since January 1990."

However, the CBI said the sector remained "firmly on track" and pointed out that while order books have slowed, they are still above their long-term average.

John Cridland, CBI director general, said: "Strong demand at home and abroad and rapid restocking over the past quarter have led to another solid rise in production, with growth expected to continue over the next quarter."

Earlier this month, official figures revealed that UK industrial production, which includes sectors such as mining and energy supply, dropped 1.2% month on month in February in its biggest fall for 18 months, while manufacturing output was flat.

Manufacturers remain optimistic about the future and expect rates of domestic and export production to continue to rise over the next quarter as the sector recovers from the recession.

The balance of companies that plan to invest in their businesses to meet growing global demand over the next year hit its highest level since records began in 1979.

Companies also indicated they had employed more staff for the third quarter in a row and expect to create more jobs in the next three months.