Make UK and accountants BDO said their quarterly gauge of output rose was at its highest in a year.
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Britain's manufacturing output bounced back in the first three months of 2023, chiming with other measures of the economy that improved, but firms expect the sector to contract as inflationary pressures persist, a survey showed on Monday.
Trade body Make UK and accountants BDO said their quarterly gauge of manufacturing output rose to +21 in the first quarter from +5 - the highest balance level since early last year, when it rose to +24.
Manufacturers expect an output balance of +32% in the next three months.
However, Fhaheen Khan, senior economist at Make UK, said the sector still faces a tough road ahead.
"One swallow doesn't make a summer and it is far too early to say the worst has passed given the significant challenges the economy faces," Khan said.
Domestic and export prices rose slightly from the previous quarter, both with balances of +52%.
There was also a big jump in total orders, with British orders increasing to +20% from +2%, while overseas orders rose to +12% from -6% in the final quarter of 2022.
Separate PMI data, published earlier this month, showed British manufacturing output contracted in February at the slowest pace since July.
The Make UK/BDO survey's measure of investment intentions showed a jump from -5% to +14%, possibly reflecting factories' intention to take advantage of the super-deduction scheme - tax incentive designed to encourage investment in new assets and equipment - which is expiring at the end of March.
Finance minister Jeremy Hunt in his budget last week said he was replacing the super-deduction with a less generous investment incentive that allows companies to offset 100% of their capital expenditure against profits for three years.
Business groups and economists have criticised uncertainty around the government's corporate tax plans in recent years, which they say has contributed to poor rates of business investment in Britain.
Looking ahead, Make UK and BDO expect output to contract to -3.3% this year, a slight improvement from the -4.4% forecast at the end of 2022, and a 0.8% growth in 2024.
"The data shows conflicting upward and downward indicators – potentially an industry at a crossroads. It will be fascinating to see which path will be followed over the coming months,” Richard Austin, national head of manufacturing at BDO said.
The survey of 338 companies was conducted between Feb. 15 and March 8.