By David Milliken

LONDON (Reuters) -British manufacturers’ hopes for an economic rebound rose to their strongest in 48 years this month as the country began to recover from the slump caused by the COVID-19 pandemic, the Confederation of British Industry said on Thursday.

The CBI said its quarterly survey of manufacturers also pointed to a revival of investment and hiring plans and continued concerns about higher costs.

“Phased reopening has lifted the mood among firms, notably driving orders, employment, and investment plans,” CBI chief economist Rain Newton-Smith said.

“However, rising costs are an increasing concern for many businesses, and seem to be putting upward pressure on prices as firms try to protect their margins.”

The CBI said its quarterly business optimism gauge, based on a survey of 288 manufacturers between March 24 and April 14, jumped to +38, the highest since April 1973, from January’s reading of -22.

Plans to invest in plant and machinery were the strongest since July 1997, with anecdotal evidence from firms that they had brought forward plans to take advantage of a temporary tax break announced by finance minister Rishi Sunak in March’s budget.

“Manufacturers are much more optimistic about the future, now that Brexit is largely in their rear-view mirror and world trade is rebounding,” economist Samuel Tombs at Pantheon Macroeconomics said.

Export order growth was the highest since April 2019.

However, the CBI’s separate monthly survey of manufacturers was somewhat less upbeat, with the orders balance falling to -8 from -5, below forecasts in a Reuters poll for a rise to +2.

The quarterly survey also showed the biggest increase in costs for manufacturers since April 2011.

“Anecdotes from manufacturers point to COVID-related supply disruption such as global container shortages leading to higher costs, with Brexit factors such as higher administration costs playing a compounding role,” the CBI said.

Britain’s economy shrank by almost 10% last year, its biggest annual slump in more than 300 years, and the International Monetary Fund expects it to grow by just over 5% this year and next.

Factories were not directly affected by tougher lockdown rules introduced at the start of the year to control the spread of COVID-19, but many of their customers were.

Restrictions have started to ease following the roll-out of vaccines, with non-essential shops reopening on April 12 and pubs and restaurants resuming outdoor service.

(Reporting by David Milliken; Editing by Andy Bruce and Alex Richardson)