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Factories hit by falling exports
Manufacturers' exports have been hit by the strong pound
A slump in exports saw UK factory orders pull back from recent 18-year highs this month, but manufacturers remained upbeat over prospects despite the new year blow.
The CBI's survey of more than 360 factory bosses showed the weakest reading for exports since July last year, which led to a fall in the sector's total order book this month r elative to normal levels.
A balance of minus 2% said total orders were above normal, while growth in overall output volumes also dipped after a particularly strong November and December, when it hit the highest levels seen since 1995.
A balance of 18% reported a rise in output, down from 29% in the previous two months.
Quarterly figures showed a rosier picture and the January fall in orders failed to dent optimism, with expectations of growth in new orders for the next quarter at its strongest since April 2012.
Stephen Gifford, director of economics at the CBI, said the manufacturing recovery remained on track, but cautioned now was "not the time to take our foot off the gas".
"There are still risks ahead and our manufacturers need help to break into high-growth export markets," he said.
Continuing weakness in demand from the eurozone may weigh on exports over 2014, while the recent strength of the pound is also likely to prove unhelpful to British manufacturers.
Sterling hit a five-year high on its trade-weighted index in December and remains near that level, making British goods more expensive for overseas buyers.
But manufacturers predict export orders will pick up in the next quarter despite these pressures, with a balance of 14% predicting a rise.
Price expectations remained a cause for concern as the reading for those predicting an increase rose to its highest in a year, with 29% of firms set to raise prices and only 8% to reduce.
In a further boost for the UK jobs market, an increased balance of manufacturers said they expect to hire more staff over the coming quarter.
This will fuel speculation that the rate of unemployment will fall sharply over the next few months and could force the Bank of England to change its 7% threshold for considering an increase in interest rates.
Economists at consultancy Capital Economics said January often shows a fall in orders, adding that monthly readings can be volatile.
They said overall quarterly results point to "strong, more balanced growth" in the UK.
"The survey gave signs that the economic recovery is set to broaden beyond household consumption to investment and exports," they said.
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