UK manufacturers 'in good shape'

Orders are flooding in fast at British factories

UK factories enjoyed a strong upturn in new orders over the summer, but high oil prices are weighing on the service sector, surveys suggest.

Manufacturers' organisation EEF said new orders rose to a nine-year high in the three months to September.

The EEF survey also revealed a pick-up in recruitment and business investment.

But a report by the Confederation of British Industry (CBI) showed service sector sentiment declined for the first time in a year amid high fuel prices.

EEF economist Steve Radley said the organisation's survey, carried out jointly with auditors RSM Robson Rhodes, showed British manufacturing was "in good health."

But he said the recent jump in world oil prices had pushed up manufacturers' energy costs, and called on the Bank of England to "pause for breath" on interest rates.

The Bank has raised borrowing costs five times since November last year in an effort to pre-empt rising inflation and take the heat out of the UK's booming property market.

Services weaken

The CBI's survey showed that rising oil prices and interest rates had dampened sentiment in the British service sector.

The CBI said service sector confidence dipped during the third quarter, as costs rose at their fastest pace since 2001.

Profitability and sales growth fell short of expectations among consumer-oriented firms, although hotels, bars and restaurants enjoyed a temporary lift from the Euro 2004 football championships.

Business services firms reported slower sales growth and a cut in workforce numbers, with oil-dependent companies such as hauliers and travel operators particularly hard-hit.

"Consumer services firms have faced a slowdown in demand and business services firms have been hit by escalating costs," said CBI chief economic adviser Ian McCafferty.

The CBI poll contradicts Friday's monthly service sector survey from the Chartered Institute of Purchasing and Supply, which reported accelerating growth and rising levels of employment.

Services are the backbone of the UK economy, accounting for more than two thirds of total output, and four-fifths of the country's jobs.