Factories optimistic on export orders

Manufacturers are predicting their biggest success in winning export orders for a decade, a snapshot survey of factory bosses showed yesterday.

Factory output hit its highest level for two years over the three months to July, according to a survey of some 620 firms by the CBI, the UK's largest employers group. But the surge in demand appeared to take some by surprise, with one in four warning that lack of spare capacity could prevent them meeting their orders.

The CBI said the number of manufacturers predicting a rise in export orders over the coming quarter outnumbered those seeing a fall by 13 per cent, the highest figure since 1995.

Ian McCafferty, its chief economic adviser, said: "If expectations of UK firms for the near term are met, growth in export orders will rise further, to the fastest rate in a decade."

The strong performance offset another fall in domestic orders, which left overall order books growing at a slightly weaker pace in July than the last survey in April. A balance of 5 per cent reported a fall in domestic orders, compared with 5 per cent reporting an increase in export orders in April.

The balance for firms' expectations of future output stayed at plus 14 per cent, unchanged from the June reading, which had been the highest for more than a year.

The number of firms working at or above capacity rose to an eight-year high of 50 per cent, close to the mid-40s levels that Mr McCafferty said tended to indicate full capacity.

Meanwhile, a balance of 23 per cent named a lack of spare plant capacity as the factor most likely to constrain their output over the coming three months, also the highest reading since January 1998. But there was little sign of an imminent surge in investment to meet the shortfall as a balance of 10 per cent said they planned to cut their budgets.

Mr McCafferty played down fears that a lack of capacity would lead to a loss of orders or a spike in the prices of factory space. "I don't think we are anywhere close to hitting the buffers," he said. "The question is the extent to which investment might be running at higher rates than we are picking up because it is taking place offshore rather than in the UK."

He added there was little sign of inflationary pressure on the factory floor. The number of companies able to raise prices was offset by the same number saying they had held or cut them. Meanwhile, a balance of 14 per cent reported a rise in their cost bill. "Manufacturers have not been able to pass on the costs they are facing in the form of prices to any significant degree," Mr McCafferty said.

He said the survey would not change the CBI's stance on rates. Richard Lambert, its director general, this week urged the Bank of England not to raise rates next week but admitted it might need to act if inflationary pressures increased.