Overseas demand provides surprise boost

Economists described the CBI’s latest findings as reassuring after the business group reported that a balance of 1 per cent of manufacturers said order books were above normal, up from minus 10 per cent a month ago.

This was driven by an improvement in exports, which were seen as being broadly at normal levels, while expectations for growth over the next quarter rose for the first time since March.

The survey was welcome news after a raft of gloomy data that showed that the sector has slowed in recent months, giving rise to fears that the Government’s plans for an export-led recovery were failing to gain momentum.

However, the CBI warned the sector still faced a growing threat as stock market volatility hit business confidence amid fears of a global recession.

Richard Woolhouse, CBI’s head of fiscal policy, said: “Manufacturing order books are holding up, and expectations for output growth are above their historical average, although they are less strong than earlier this year.

“But the risks to manufacturing activity and business confidence have if anything increased, due to market volatility and the recalibration of growth expectations worldwide.

“Concerns around growth in the US and the euro area present further challenges to the manufacturing recovery.”

The survey also showed that inflationary pressures have continued to ease after the strong price rises in the first half of 2011 and remain “fairly modest”.

A balance of 9 per cent of manufacturers expect to raise prices over the next three months, which is up on the 4 per cent last month, but below the figures of more than 30 per cent seen in the first half of the year.

Simon Hayes, of Barclays Capital, said: “The survey for August was solid, belying concerns that UK manufacturing has lost momentum.”

But he said he was “rather sceptical” that the survey gave an accurate reading on the sector.