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CBI says order books showing improvements

UK manufacturers have enjoyed an improvement in their order books in recent weeks, but predict output volumes will be flat over the next three months, a key survey has revealed.

The Confederation of British Industry survey, while providing some relief after a slew of grim manufacturing indicators, was not viewed by economists as changing the picture of a sector which is likely to post a sharp fall in output for the fourth quarter as a whole.

Economists highlighted continuing pressures on UK manufacturing from domestic and overseas markets.

Of 392 UK manufacturers surveyed by the CBI between November 22 and December 7, 18% said order books were above normal and 30% reported a worse-than-usual position.

The net 12% reporting below-normal order books was an improvement on the balance of 21% reporting such a position in the CBI's previous monthly industrial trends survey.

The latest reading was also better than the long-run survey average of a net 17% of manufacturers reporting below-normal order books.

But manufacturers' views of their export order books were little changed from a month earlier. In the latest survey, a net 11% of manufacturers reported below-normal export order books, with 18% saying they were better than usual and 29% declaring they were worse.

UK manufacturers, overall, signalled an expectation that the sector's output volumes would be flat over the coming three months, with 23% projecting a drop, 23% forecasting a rise, and 54% predicting an unchanged position. This was an improvement, however, on the previous month's survey, in which a net 9% of manufacturers forecast a fall in output volumes on a three-month view. Manufacturers signalled, in the latest survey, that they were keeping stock levels low.

Anna Leach, head of economic analysis at the CBI, said: "December's survey reports a welcome improvement in manufacturers' order books and their expectations for output. Even so, they remain hesitant in predicting further output growth and are keeping stock levels low. Conditions in the sector and the wider economy are likely to remain fragile until global conditions improve over the course of 2013."

Howard Archer, chief UK economist at consultancy IHS Global Insight, said the CBI survey "offers some grounds for optimism for manufacturers going into 2013 after they suffered a pretty torrid end to a largely difficult 2012".

But he added: "Domestic and international conditions clearly remain challenging for manufacturers and they are unsurprisingly cautious over the outlook." He said it still looked highly likely that UK manufacturing output would see "appreciable contraction" in the fourth quarter and weigh on overall gross domestic product.

Samuel Tombs, UK economist at consultancy Capital Economics, said the Chartered Institute of Purchasing and Supply's November manufacturing output balance had been consistent with a 0.5% drop in the sector's output in the fourth quarter. He added that the 1.3% month-on-month fall in official UK manufacturing output in October "points to an even weaker performance in Q4 as a whole".

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