CBI industrial trends survey shows UK manufacturing sector recovery dented

Official GDP figures on Friday are expected to show all major sectors of the economy grew strongly in the third quarter. Photograph: Christopher Furlong/Getty Images

A faltering eurozone economy and a steep rise in the exchange rate appeared to dent the recovery of the UK's manufacturing sector in October.

The CBI's industrial trends survey reported that confidence in the sector grew this month, but a slump in the export order book to -12 slowed output.

The business lobby group, which surveys 350 manufacturers, said the trend over the last three months remained positive and the sector was continuing to make a contribution to economic growth.

Official figures on Friday are expected to show all the major sectors of the economy – manufacturing, construction and services – grew strongly in the third quarter of the year.

Senior policymakers, including the Bank of England's chief economist, Spencer Dale, have estimated that GDP is improving by 3-4% on an annualised basis at the moment.

But the CBI report highlighted the struggle faced by David Cameron to meet one his key goals of re-balancing the economy away from financial services and property to manufacturing and exports.

The survey found that the export order book fell from +6 to -12. Output over the next three months is expected to slow after seven months of double-digit expansion, culminating in a +33 figure in September, declined to +9 in October.

Samuel Tombs, UK economist at Capital Economics, said the survey suggests the manufacturing recovery is built on "fairly robust foundations", though he remained concerned about the low level of investment.

He said: "Growth in manufacturing output may struggle to gather pace, given that domestic consumers' incomes remain under pressure from inflation and the recent rise in the pound has undermined exporters' competitiveness slightly. But with output still more than 10% below its peak, their remains plenty of scope for the manufacturing sector to continue to recover in the coming years."

A survey by financial data provider Markit of eurozone businesses found that a pickup in momentum during the summer, which ended an 18-month recession, slowed in October.

Markit said the upturn was more modest after its composite index fell from 52.2 in September to 51.5.

"The expansion was broad-based across the region, though there were signs of moderation in the bloc's two largest economies," said Markit.

"Growth slowed to a three-month low in Germany, while France registered only a negligible expansion as its PMI dipped closer toward neutrality. The rest of the eurozone, meanwhile, reported modest growth of activity for the third month running, representing the first period of growth for these countries since early-2011."

The pound has appreciated from $1.52 in July to around $1.62 in recent weeks. The 10 cent rise appears to have done little so far to undermine exports to the US or regions that are tied to the dollar, though a further strengthening of the exchange rate is feared by manufacturers that could find themselves priced out of vital markets.