The survey of 467 firms saw a rise in the volume of total new orders, led by strong demand at home and very modest growth in export orders. Manufacturing output rose at a similar pace to the previous quarter and it was notable that costs and prices fell, with unit costs edging down for the first time in over twelve years. Average domestic price deflation is at its fastest rate since 2010.

Meanwhile, numbers employed in the manufacturing sector continued to grow at a solid pace. Over the next three months, firms anticipate new export orders to be flat, acting as a drag on total orders growth, while domestic orders are set to continue rising, if at a somewhat slower pace compared to previous quarters. Output is expected to continue growing modestly.

However, access to skilled labour and capacity constraints are key factors cited as likely to limit output in the next quarter, and significantly more respondents expect price competition to limit export orders. Firms do, however, remain more optimistic about the general business situation than three months ago.

Looking to the year ahead, manufacturers’ plans for investment in plant and machinery have strengthened, while plans for spending on product and process innovation and training/retraining remain robust.

Rain Newton-Smith, CBI director of economics, said: “British manufacturers are still heading along the right path: new orders are up, bolstered by domestic demand and more people are getting work in factories across the UK.

“Exports have grown modestly, but there is a feeling that we will not see a repeat in the next quarter, especially with the Eurozone still treading water and battling deflation.

“Falling oil prices should be positive for the UK economy overall, benefitting households and lowering costs for firms, although North Sea oil producers are being hit. With overall cost pressures contained as a result, it’s no surprise to see average domestic prices in the manufacturing sector falling at the fastest rate for five years.”