Sector's output boost but clouds gathering

Manufacturing output has held steady in the fourth quarter at the previous three months' record high and companies have stepped up hiring, but they are less confident about the outlook for 2011, a survey showed yesterday.

The Engineering Employers' Federation said a balance of 33 per cent of firms reported a rise in output in the fourth quarter, unchanged from the previous three months which was the highest level since the survey began in 1995. However, the balance of firms planning to raise prices climbed to its highest point in more than two years.

Companies say they plan to pass on higher commodity prices and some also hope to rebuild margins that shrank during the recession, the EEF said. A balance of 16 per cent of companies expects to raise domestic prices in the next three months, compared to 5 per cent in the previous quarter. A balance of 12 per cent think export prices will go up, compared to 5 per cent in the previous three months.

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The Bank of England, wrestling with above-target inflation and a slow economic recovery, has forecast that price pressures will rise early in 2011 before falling back below its 2 per cent inflation target in 2012.

"Manufacturers are ending the year on a high and should enter 2011 on a strong footing," said Lee Hopley, EEF's chief economist.

"But the strong bounceback has also brought challenges, with some manufacturers struggling to get the skills they need and facing rising costs."

Separate figures last week showed a strong pick-up in the UK manufacturing purchasing managers' index in November, while growth in the dominant services sector eased from a four-month high in October.

Most economists expect GDP growth to slow sharply in the final three months of 2010.

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