Manufacturing output hit its highest level in nearly two years in the three months to March in the clearest sign that a revival could be on the cards for the sector.
Although still flat, the CBI’s monthly order book balance rose to -5 in March, the highest reading since April 2019 and up from -24 last month.
The jump smashed the expectations of analysts, who had predicted a much more modest increase to -20.
A combination of a marked improvement in order books, as well as increasing optimism for the next three months, sent the measure higher.
Output increased in eight out of CBI’s 17 sub-sectors, with growth in the electronic engineering and plastic products sub-sectors partially offset by declines in paper, media and aerospace.
Firms also said that a combination of higher freight prices and raw material shortages would see prices rise at a higher pace over the next quarter.
Anna Leach, the CBI’s deputy chief economist, said that the improvement in manufacturing outlook was “great to see”.
She added that this month’s Budget could help push optimism even higher, with the flagship “super-deduction” policy a “real catalyst” for investment.
Under the plan, companies which choose to commit to capital spending on equipment and materials in the UK are entitled to tax breaks.
Despite the more positive tone, Tom Crotty, group director at Ineos and chair of the CBI Manufacturing Council, said:
“There can be no doubt that this progress is fragile and the sector continues to operate in a challenging landscape.
“Container shortages and higher freight costs are causing issues with supply chains and many firms are also encountering unanticipated difficulties with the new post-Brexit trading arrangements.
“It’s therefore important for the government continues to support the sector through the coming critical weeks and months ahead.”
The EY Item Club said that the survey added weight to the argument that the latest lockdown had done less damage to the economy than first feared.
It now is predicting a fall of 1.5 per cent of GDP, rather than prior estimates of a 4.0 per cent fall.
In addition, it added that it was likely to raise its current 2021 GDP growth forecast of 5.0 per cent.