UK monthly manufacturing orders rise sharply

UK factory orders continued to rise in December and the manufacturers expect the output growth to be robust in the next three months due to strengthening demand at home and abroad.

Total order book balance in UK rose to -3 in December from -15 in November, the highest level since June 2008, the Confederation of British Industry (CBI) survey showed on Wednesday.

Markets had expected the order book balance to rise to -12 in December.

“December’s CBI Industrial Trends Survey provides further evidence to suggest that the manufacturing recovery has picked up pace again,” said Samuel Tombs, an economist with Capital Economics.

“With total order books getting back to normal levels and overseas demand particularly strong, the outlook for UK manufacturing output growth is encouraging. The past sharp depreciation of Sterling should continue to underpin demand for UK exports into 2011,” said Ian McCafferty, chief economic adviser, CBI.

Also, firms’ expectations on the manufacturing output in the coming months rose sharply, with the corresponding balance increasing to +13 in December from +4 in November.

“So, while we have doubts about the likely strength of the recovery in the rest of the economy, the manufacturing sector looks set for pretty decent growth in the near term at least,” said Tombs.

The balance showing the exports order growth rose to +4 in December from -7 in November, reaching the highest level in fifteen years.

“The rise in the export orders balance also suggests that the problems in the euro-zone have not had any adverse effect on the UK’s manufacturing recovery yet,” said Tombs.

Further, firms said that they plan to increase the prices in the next three months, fuelling inflation worries in the country.

“However, with oil and other commodity prices rising, cost pressures will remain a concern,” McCafferty said.

Inflation in the U.K. rose during October, mainly pushed by fuel and lubricant prices and continued to remain above the 2 percent target set by the Bank of England, according to the U.K. Office for National Statistics.

Consumer price index annual inflation was 3.2 percent in October, and continued to be above the target of 2 percent for the eighth consecutive month.

The BoE has kept interest rates constant at 0.5 percent for the past several months in an attempt to contain inflation.

The BoE had stated that the CPI is likely to stay above the two percent target for 2011, given the forthcoming rise in VAT and continuing increases in import prices.