Order volumes have held up remarkably well, rising at the national level for the fourth quarter in a row. This is underpinned by marked growth in Yorkshire & the Humber, the North West, the East Midlands, the West Midlands, the South West and the South East & London. The North West saw the strongest orders growth since records began in 1988, and the South East & London the sharpest rise since mid-2000.

Buoyant demand in these six regions was underpinned by the strength of export orders, which showed some of the strongest gains of recent years during the quarter (again, the strongest on record for the North West).

Strong output growth was also reported across these regions. For London & the South East, after nine months of steadily rising output, the region posted its strongest increase since 2000.

Elsewhere the picture is more subdued but still positive, with modest rises in export orders supporting total demand. Output at the national level remains largely unchanged, but fell back markedly in Wales, the North East, and Scotland.

However, looking ahead, expectations for new orders in the coming three months are at their weakest for almost two years at the UK level, although they are still marginally positive. The most downbeat regions are Wales, the West Midlands and Scotland, who all expect a decline, but the East Midlands continues to stand out with a persistently positive outlook.

The overall UK employment fell again over the past three months, but at a slower rate than was expected. According to CBI/Experian estimates based on the survey results, 7,000 manufacturing jobs were lost in the July - September quarter, well down from the quarterly average since 2003 of around 30,000.

The outlook for jobs in the manufacturing sector has become less discouraging as healthier trends for orders and output in many regions provide support to employment prospects. In contrast to the persistent job losses of recent years, five regions expect little or no change over the next three months, while modest job gains are expected in the East Midlands.

The employment gains expected in the East Midlands build on the region's success in creating new manufacturing jobs over recent months. It is typical of the positive responses in the current survey of this area, where manufacturing still accounts for a fifth of overall output, the largest share in the UK. The region reports an exceptional upturn in export orders in the past three months and a strong increase in output and employment. It is also among the most positive regarding capital spending on plant & machinery in the next 12 months, and is the most positive about new orders in the months ahead.

The recent surge in oil prices and upward pressure in raw material costs have led to a sharp increase in average costs across most regions, felt most acutely in Northern Ireland, Wales and the South East & London.

In order to contain the squeeze to profit margins, manufacturers have raised domestic prices, though the picture on export prices is more mixed. The East of England and the South East & London are the two regions leading in price increases in both domestic and export markets.

Looking ahead, domestic prices nationally are expected to see a modest rise, while export prices will remain broadly the same. The West Midlands is the only region to predict a fall in domestic prices, and also foresees a marked drop in export prices.

Peter Gutmann of Experian said, "Demand for UK manufactures this year has been boosted by the Eurozone's solid performance. The fall in export optimism in the survey reflects fears of a loss of momentum as the global credit squeeze dampens growth prospects. But it is premature to call an end to manufacturing's recovery. Growth in the eurozone now expected at only 2 per cent in 2008 still represents a major improvement on the 1.3 per cent annual average seen earlier this decade. This should support demand next year and there will also be some help from sterling's recent easing against the euro."

CBI Principal Economist Lai Wah Co added, “UK manufacturers have been busy over the past three months, with strong orders prompting a healthy flow of output, particularly in the English regions. Manufacturers expect a slowdown in orders growth going forward, but this is hardly surprising given the backdrop of higher interest rates. However, this weaker pace of demand may make it harder for firms to pass on higher costs in the face of sharp rises in oil and commodity prices.

"It has yet to be seen whether the credit squeeze will depress confidence still further, and indeed to what extent the manufacturing sector will be affected in real terms."