BRITISH manufacturing order books, helped by rising domestic demand, are running at their best level in 20 months - but improved demand has increased pricing power that could stoke inflation, CBI figures showed yesterday.
In its monthly industrial trends survey, the employers' organisation said a balance of -8 per cent reported order books were above normal in August, against -11 per cent in July. The figure wrong-footed analysts who had expected a deterioration to -1
3 per cent.
Despite remaining in negative territory, the CBI said the figure was the strongest since December 2004. The improvement was mainly due to stronger demand in the capital goods sector, which includes shipbuilding, aerospace and industrial machinery. There was also a modest increase in consumer goods.
The CBI said the improvements appeared to be driven by domestic demand, as the level of export order books was unchanged from July. However, the balance for firms' expectations of future output fell to +11 from +14 in July.
Ian McCafferty, chief economic adviser at the CBI, said: "The outlook remains encouraging for UK manufacturers but it is disappointing that export orders have not improved more, given the current revival of the euro zone economy, our principal market."
There were also signs of improved pricing power, with a positive balance of 13 per cent of firms saying they expect to increase average prices over the next three months.
The reading was the highest for 20 months, but McCafferty added that prices are set to rise in coming months as firms that had previously been absorbing higher energy and raw material costs are now looking to pass these costs on.
Alan Clarke, UK economist at BNP Paribas, said: "Inflationary pressures that are becoming ever more evident were also clear in this survey."
Ross Walker, the RBS economist, added: "The surveys' pricing indices are not infallible guides but they do reinforce the sense that the recovery in British industry is set to continue for several months yet."
