CBI's factory orders index hits two-year high

BRITISH factory orders looked to be their strongest in two and a half years after a surge in overseas demand, the Confederation of British Industry's December industrial trends survey has showed.

The CBI survey's total order book balance unexpectedly jumped this month to -3 from -15 in November, well above economists' forecasts of a reading of -13 and its highest since June 2008.

The export order book balance also rose to +4 from -7, its highest in 15 years. The indexes are normally in negative territory.

"These figures show that the recovery in the manufacturing sector is well underway. With total order books getting back to normal levels and overseas demand particularly strong, the outlook for UK manufacturing output growth is encouraging," said CBI chief economic advisor Ian McCafferty.

Howard Archer, chief economist at consultancy HIS Insight, said the results were “excellent.”

The improvement in export orders showed that sterling weakness “is currently increasingly feeding through to support foreign demand for UK manufacturers,” he said.

“Manufacturers have largely benefited through 2010 from healthier demand both at home and overseas, improved competitiveness in both domestic and foreign markets stemming from the weak pound and a major rebuilding of stocks after they had been slashed during the recession,” he added.

Yet both he and McCafferty flagged concerns over rising cost pressures on firms.

The survey index showed a net balance of +16 per cent of manufacturers expected to raise domestic prices in December to pass on rising input costs.

"With oil and other commodity prices rising, cost pressures will remain a concern," McCafferty said.

The domestic price expectations index held broadly steady at +16 versus +17 in November.