The diffusion index for manufacturers' total orders improved to -4 per cent for the three months until the end of January, from a reading of -13 per cent for the previous month and versus surveyors' expectations for a recovery to +8 per cent, according to the results of the latest quarterly survey carried out by the Confederation of British Industry (CBI).

Export orders, however, continued to fall for the third consecutive quarter (-13% compared with -17% in the previous quarter), against expectations that they would stabilise. However, manufacturers anticipate a resumption of growth in export orders for the coming three months (+7%), underpinning fairly robust expectations for total orders (+14%).

Underlining the weakness in export orders, the CBI's monthly industrial trends report for January showed the export orders balance drop to -29 from -11 in the month before.

Nevertheless, both orders and output are expected to rise moderately over the next three months. Likewise, the employment and investment picture continues to look relatively positive. Even so, the forecast rise in the latter in the next quarter, to +8%, represents the lowest expectation since October 2011 (-11%).

Commenting on the data, Anna Leach, CBI Head of Economic Analysis, said: "While domestic demand and business optimism have steadied, export demand remains a concern for manufacturers, with orders continuing to fall, albeit at a slower rate. There are encouraging signs of stability in overall demand, however, with domestic orders, export orders and production expected to rise in the quarter ahead."

Average unit cost growth saw little change from the last survey (+21% from +20%), and is expected to continue on this path in the next three months (+23%).

Economists at Barclays Research, for their part, are pointing out that "While the monthly survey suggests a continuation of the recent weak trend in the industrial sector during January, the quarterly survey provides some reason for optimism for the near-term outlook. It suggests that a pick-up in export orders could lift activity and employment in the coming three months. We expect industrial production to edge up by 0.3% quarter-on-quarter in the first three months of the year, driven by a similar improvement across all components, and for the year as a whole we expect a measured recovery to emerge with output increasing by 2.0% annually."

AB

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