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Manufacturers report that demand is easing

13 December, 2007

Evidence of a slight slowdown in the UK economy is revealed in the latest snapshot of the manufacturing sector, published in mid-December. The CBIís Industrial Trends Survey, based on data from 557 manufacturers, shows that while order books are still considered broadly "normal", demand is easing slightly. And, although output is expected to continue to grow in the first quarter of 2008, the balance of firms reporting this has weakened.

A quarter of the firms questioned had above-normal order books, and 22% were below normal. Demand seems to be shifting from the UK to overseas. Export order books saw their first positive balance since February 2007. This is likely to reflect the weakening of the pound against the euro, encouraging more UK exports to Europe.

Manufacturers` expectations for output growth have fallen, but they still expect modest growth.

The survey also revealed that manufacturers intend to continue raising their prices at a similar rate to recent months, indicating they are still confident about passing on some of their rising energy and commodity costs

"The manufacturing sector has become much leaner in recent years, which has enabled it to largely withstand the triple whammy of rising commodity costs, a strong pound against the dollar, and five interest rate rises," comments the CBIís chief economic adviser, Ian McCafferty. "Although firms are now reporting weakening demand and expect output to grow only modestly next quarter, it is a case of the sector changing from fifth gear to fourth, certainly not juddering to a halt.

"Firms still feel able to push through price increases in the next three months," he adds. "And even as the domestic market slows, they are enjoying a period of relatively strong demand from overseas, as the pound has been falling against the Euro and stimulating trade with the Eurozone."

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