UK manufacturers enjoy a major hike in domestic orders
Optimism among manufacturers has soared as domestic orders rose at their fastest pace since mid-2014. The latest Confederation of British Industry (CBI) industrial trends survey showed that 37% of businesses saw an increase in home-grown orders in the three months to January, compared to 21% who reported a slump, giving a balance of 16%.
This is the highest level for domestic orders since July 2014 when the balance was 23%.
The poll, which surveyed 461 businesses, found that the total order books increased from a balance of 0% in December to 5% in January, the highest measure since April 2015.
The pick up in business boosted industry confidence, with 27% of firms more optimistic about the general business situation than three months ago and 12% less optimistic, given a balance of 15%.
It brings manufacturing sentiment to its highest level since January 2015 when it was also 15%.
CBI chief economist Rain Newton-Smith said UK manufacturers have been "firing on all cylinders" but warned that sterling's collapse was starting to hurt the industry.
Unit costs rose at the fastest rate in over five years, and companies now expected further price pain over the next quarter.
"The weaker pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers," Ms Newton-Smith said.
But the drop in sterling helped raise competitiveness in non-EU markets, which rose at a rate not seen in the survey's history, to a balance of 26%.
Competitiveness in EU markets reached a balance of 28%.
But that did not translate into a stellar rise in manufacturing exports, which increased "moderately" to a balance of 5% and below expectations for a balance of 17%.
It has not dampened confidence, as optimism about export prospects in the year ahead rose strongly to a level of 19%.
The number of people employed in manufacturing rose in the three months to January, to a positive balance of 4% from minus 5% in the three months to October.
Yet concerns about access to skilled labour reached its highest level in over 27 years, with almost a quarter of respondents saying that labour availability could hurt output over the coming months.
Businesses have raised concerns over skills shortages after Brexit, and the impact on EU migration to the UK.
Commenting on the survey, Howard Archer, chief European and UK economist at IHS Markit, said: "With the exception of the elevated prices balance, this is a thoroughly pleasing survey that indicates that the UK manufacturing sector has started off 2017 on the front foot and is confident about near-term prospects."
But he went on to warn that there were "significant challenges" that would likely intensify throughout 2017.