CBI warns of further high street deflation

Fierce competition on the high street will force prices down even further next month, manufacturers warned yesterday. But the latest survey by the Confederation of British Industry offered a glimmer of hope as firms reported a pick-up in output on the back of rising export orders despite the continued strength of the pound.

Fierce competition on the high street will force prices down even further next month, manufacturers warned yesterday. But the latest survey by the Confederation of British Industry offered a glimmer of hope as firms reported a pick-up in output on the back of rising export orders despite the continued strength of the pound.

Its poll of more than 1,000 businesses found on balance 20 per cent of firms expected the prices they charged to fall over the next four months. This compares with 15 per cent last month and is the gloomiest since May. Total orders improved slightly although they were still weak. Export orders improved for the second month in a row, although they too are still negative. Output is expected to pick up and the fastest for five months.

Sudhir Junankar, a senior CBI economist, said strong competition was "taking its toll" on manufacturers but said a revival in demand was good news.

The survey was carried out before the escalation in the fuel crisis and Mr Junankar warned it might have had a significant impact on manufacturing.

Economists said the survey came as little surprise but would reinforce the views of those members of the Monetary Policy Committee that wanted to keep interest rates on hold.

Adam Cole, an economist at HSBC, said: "Given the poor performance of manufacturers since sterling's appreciation, its recovery remains extremely fragile." But others said evidence that manufacturing was pulling itself out of the doldrums could allow the MPC to raise rates. Philip Shaw, of Investec, said: "This survey does not act as a barrier to a rate increase."