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Demand for UK-made goods reached a two-year high in the three months to February, but the fall in the pound is expected to drive up prices in coming months, according to the latest survey of the manufacturing sector by the CBI.
The survey of 471 firms, published yesterday, found export orders were unchanged, but remained above their long-run average. Economists say the fall in sterling after the EU vote may be leading UK businesses to source more of their inputs from domestic producers.
The data are the latest evidence of a shift in the economy from the services sector towards manufacturing. Official data last week found that retail sales slowed in January as higher costs started to be passed on to consumers. Other surveys, including the purchasing managers’ indices produced by Markit/CIPS and the Bank of England, have also reported manufacturing growing strongly.
However, the services sector accounts for about 80 per cent of the economy, while manufacturing makes up only 10 per cent, so modest growth in the latter is unlikely to offset a slowdown in services.
While output continued to climb in February, the CBI also found companies expected prices to rise sharply in the coming months. A higher proportion of manufacturers expected the price of their goods to rise than at any time since April 2011, when consumer inflation was at 4.5 per cent.
“Stronger demand and production is good news for UK manufacturers, although the weaker pound continues to push up input costs,” said Rain Newton-Smith, CBI chief economist.
As much of the raw material to make goods in the UK is imported, the exchange rate fall is set to lead to higher costs. Prices of imported material and fuel rose 20 per cent in the past year, the Office for National Statistics said last week.
