According to the latest quarterly CBI Industrial Trends Survey, manufacturing growth accelerated over the last three months, with manufacturing output, domestic orders and export orders all picking up compared with the previous three-month period.
Stocks also continued to grow robustly, with inventories of finished-goods stocks rising at the fastest pace since October 2013.
Investment intentions for buildings, as well as plant and machinery, moved back to above average after deteriorating in the previous quarter, while “spending on innovation” is expected to continue to increase at a “robust pace” in the year ahead.
The survey also shows that employment over the last three months grew at the fastest pace since July 2014, with further growth expected next quarter.
However, skills shortages remain high on firms’ agendas, with the number of firms citing skilled labour as a factor likely to limit output over the next three months the highest for more than four decades.
Furthermore, overall capacity pressures are “biting hard”, with the proportion of firms with spare operating capacity the lowest in 29 years.
CBI chief economist Rain Newton-Smith said: “It’s good to see manufacturing going from strength to strength, with growth up and the buoyant global economy boosting export orders; but the past depreciation of sterling continues to leave its mark on firms’ costs and margins.
“With expectations for factory-gate price inflation at their highest in 30 years, the pressure on consumer prices looks set to persist.
“Capacity pressures are ramping up, and skill shortages are a big concern, underlining the importance of establishing a future immigration system that gives companies access to talent and labour.
“The building blocks of a new system that meets economic needs and public concerns must start with scrapping the net migration target, which has never been fit-for-purpose.”