Britain's manufacturing sector grew steadily over the last three months, with output and orders both increasing as the pound's ongoing weakness boosted exports, according to data from the Confederation of British Industry (CBI).
The latest CBI Industrial Trends Survey showed exports rose to +8% in the last quarter, the highest balance since April 2014, while competitiveness in EU markets rose at the fastest pace since the records began in 2000, with competitiveness outside the bloc also improving at the quickest rate since 2009.
The monthly total orders balance, however, fell to -17 in October from -5 in September, well below the consensus for an unchanged reading.
Of the 459 firms surveyed, 27% said the volume of output over the past three months was up and 18% said it was down, giving a balance of +9%, while 29% of businesses reported an increase in total orders, and 20% a decrease, giving a balance of +9%.
While exports increased for the first time in a year, domestic demand grew modestly. However, the CBI said outlook for demand over the next three months was positive, with export orders expected to rise further, along with more modest growth in domestic orders.
"Manufacturers' are optimistic about export prospects and export orders are growing, following the fall in sterling," said Rain Newton-Smith, CBI chief economist. "However, the weaker pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead."
One in five firms said they were more optimistic about the general business situation than three months ago, but 28% said they were less optimistic, giving a balance of -8%, a marked improvement from the -47% figure recorded in the previous three months. Optimism about export prospects for the year ahead rose to +9%, the highest level since April 2014.
However, concerns remained about the availability of skilled labour, with almost a quarter of respondents warning skilled labour availability could limit output over the next few months.
"Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns," said Newton-Smith.
"Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important."
The balance of firms committing to increase plant investment improved rose from -5 in the third quarter to 0, but remained well below the +17 balance before the referendum.
"Manufacturers largely are treading water, as weakness in domestic demand offsets to the boost from the lower pound," said Samuel Tombs. chief UK economist at Pantheon Macroeconomics.