CBI principal economist Alpesh Paleja said the responses suggested “mixed fortunes” for smaller manufacturers.
“While growth in new orders has held up and headcount has risen strongly, output growth has lost some steam over the last quarter. Coupled with ongoing pressure from labour shortages, it’s understandable that optimism among manufacturers has fallen,” he said.
Export and domestic demand helped trigger the rise in orders, and firms’ investment intentions for the year had not deteriorated despite expectations that they would cut back investment in buildings and plant and machinery.
Three in ten (30%) manufacturers said their export orders had risen over the past three months, with 11% saying they had fallen, and 35% reported an increase in domestic orders while 22% said they were down.
Despite the increases, the average costs growth remained elevated, with firms expecting weaker domestic orders growth in the next quarter.
Labour shortages saw over a third of manufacturers (37%) employ more people than three months ago, and the proportion of firms working below capacity (44%) has been at its lowest since April 1989 (41%).
Paleja suggested that chancellor Philip Hammond’s upcoming Budget could help “fire up” factories by reforming business rates and setting out a clear plan to revive the UK’s Industrial strategy.