According to the latest quarterly CBI Industrial Trends Survey, UK manufacturers are more optimistic about their business situation and exporting prospects, while reporting strong growth in domestic orders compared with the previous quarter.

The survey of 461 manufacturers reveals that the volume of domestic orders rose at the fastest pace since July 2014 in the three months to January, while export orders continued to grow, but below expectations. Headcount edged higher having dipped for the first time in more than six years during the last quarter.

Over the next three months demand is expected to grow strongly, driven by both domestic and export orders, while production is also expected to grow quickly. Expectations for output growth are also the highest since July 2014.

However, concerns remain about access to skilled labour and almost a quarter of respondents (the highest since July 1989) observed that skilled labour availability could limit output over the next few months.

Sterling’s depreciation continues to impact prices as unit costs rose at their highest pace in over five years, amid expectations that this will intensify over the next quarter. But on the flip side, manufacturers continue to see the competitive benefits arising from sterling’s weakness, reporting a further strong rise in competitiveness within the EU and putting the rise in competitiveness in non-EU markets at a survey high.

The pick-up in output has meanwhile eaten into spare capacity, pushing the proportion of firms citing capacity expansion as an investment driver to a survey high. Companies are planning to increase investment in product and process innovation and training and retraining in the year ahead at the fastest pace in two years, while investment plans for building and plant and machinery have moved back above their long-run averages.

CBI chief economist, Rain Newton-Smith, said: “UK manufacturers are firing on all cylinders right now with domestic orders up and optimism rising at the fastest pace in two years. The weaker Pound is driving export optimism for the year ahead, but is having a detrimental impact on costs for firms and ultimately for consumers.

“The new Industrial Strategy can support our manufacturing base by offering a shared long-term vision for the key sectors and regions of the economy and evidence-based plans for government and business collaboration. The CBI and its members across the country stand ready to support the Government in achieving this.”