Optimism improves in manufacturing sector

Improved export prospects have helped lift manufacturers' optimism, an industry survey has revealed.

The Confederation of British Industry (CBI)'s quarterly industrial trends survey suggests that while the volume of UK manufacturing output continued to fall in the three months to October, it did so at a slower rate than in the previous quarter. Thirty-four per cent of firms polled said that output had contracted, compared to 26% who said it grew. The balance - minus 8% - was up from -31% in July.

The weakness of the pound helped to prevent exports falling as much as expected during the period, and is thought to be behind a cautious optimism about exports in the next quarter: a +9% balance of companies said they expected orders to grow. Meanwhile, a +3% balance of firms expect growth in domestic orders over the same period.

The improved outlook for orders helped lift firms' optimism about their overall business situation, with this measure recording its first improvement since April 2007. A balance of +10% said that they were more optimistic now than three months ago.

However, manufacturers reported increasing worries about the cost and availability of finance. Some 14% said that an inability to raise external finance was limiting investment, an increase from 8% in July.

CBI chief economic adviser Ian McCafferty said: "Firms finally seem to be benefiting from a weakened pound, as global markets recover, helping to lift demand for UK exports.

"However, the recovery from the downturn will be protracted and weak - investment will remain constrained and unemployment will continue rising. The tight flow of credit to many manufacturers remains a worry, and firms which are unable to get funding to meet orders could see their hopes of recovery stall."