UK factories expect gentle pickup over next three months, CBI says

By David Milliken

LONDON (Reuters) - British factories expect a modest upturn in output over the next three months despite a weak backdrop due to higher taxes and energy costs and a difficult export environment, the Confederation of British Industry said on Thursday.

The CBI's monthly balance for manufacturers' output expectations over the next three months rose sharply to +8 in February from -19 in January, a three-month high that took it back to its long-run average.

"With firms having rapidly run down stocks of finished goods, it's possible that the need to re-build inventories partly explains this rebound. Order books remain weak from a long-term perspective," CBI lead economist Ben Jones said.

The CBI's headline industrial orders index rose to -28 from -34 - slightly above economists' forecasts of -30 but below its long-run average of -13.

The export order balance increased only marginally to -36 from -38.

"The survey paints a downbeat picture of the manufacturing sector over the last three months, which can be attributed in part to low domestic business confidence following the Autumn Budget combined with a subdued international environment," Jones said.

Finance minister Rachel Reeves' first budget on October 30 included a 25 billion-pound rise in employment taxes and the government announced a nearly 7% rise in the minimum wage at the same time.

Official data last week showed that British industrial output fell by 1.7% last year, including a 0.8% fall in the final three months of the year, the fifth consecutive monthly decline.

(Reporting by David Milliken; Editing by William Schomberg)