British manufacturers reported the fastest growth in orders since December 2017 in May but fear supply-chain bottlenecks will cause their costs to rise sharply, according to a survey which adds to signs of a rebound for factories.

The Confederation of British Industry’s industrial orders balance - measuring the proportion of firms reporting order volumes above or below normal - rose to +17 from -8 in April.

Overall output growth over the past three months was the highest since December 2018 and represented the first material growth in almost two years, the CBI said.

“The industrial sector is booming... for now,” Samuel Tombs, economist at Pantheon Macroeconomics, said.

Export orders lagged behind domestic demand, which Tombs said reflected new post-Brexit trade barriers. Demand for goods was also likely to soften later in 2021 as spending shifted more towards services as the economy reopened.

Official data for March released last week showed factory output was 2 per cent below its level in February 2020, before Britain went into its first COVID lockdown which caused output to slump briefly by 30 per cent.

Other surveys of manufacturers, such as the monthly Purchasing Managers’ Index, have also pointed to strong growth. April’s PMI showed the biggest rise in new orders since November 2013.

However, the pandemic is still having a knock-on impact on global supply chains, with shortages of everything from micro-chips to building supplies. Last month carmaker Jaguar Land Rover temporarily stopped production at two factories in Britain due to a lack of semi-conductors.

“Firms are still feeling the chill as supply shortages fuel cost pressures, reflected in expectations for strong output price inflation in the coming quarter,” CBI economist Anna Leach said.

The survey’s price balance rose to its highest since January 2018 at +38 in May, up from April’s +27 and well above its average of +3.

Nearly half of smaller British manufacturers expect to recover to their pre-pandemic health in the coming months, with investment and hiring plans on the rise, a survey showed.

Business support groups South West Manufacturing Advisory Service (SWMAS) and Manufacturing Growth Programme said 48% of small and medium-sized manufacturers expected to meet or surpass their pre-COVID position in the next three months.

The survey adds to other signs that a wave of optimism has swept British companies as the economy gradually reopens following a third national coronavirus lockdown.

Prime Minister Boris Johnson allowed non-essential shops to reopen and outdoor hospitality to resume in April in England and there have been signs that the economy accelerated in response.

Further relaxations are due to take place this week before almost all remaining restrictions are lifted in late June, assuming the number of new COVID cases remains low.

“SME manufacturers are definitely feeling confident about the future, but there will still be a lot of challenges to overcome, not least the availability and lead times of material,” said Martin Coats, managing director of MGP.

Some 58 per cent of the companies surveyed said they planned to raise investment over the next six months, while 54% intend to recruit more staff, the survey showed. The survey of just under 300 companies was conducted between April 12 and April 23.

Meanwhile the Britain’s unemployment rate fell again to 4.8 per cent between January and March, when the country was under a tight lockdown, and hiring rose further in April, according to data that showed employers gearing up for the easing of curbs.

Economists polled by Reuters had expected the rate to hold at 4.9 pr cent, and the reading added to signs that the labour market will escape the severe hit feared at the onset of the coronavirus pandemic, thanks mostly to government jobs subsidies.

Some of the fall in the unemployment rate - the third in a row - was due to a rise in people not looking for work, with inactivity rate among men hitting a record high, echoing a pattern seen during Britain’s first lockdown last year.

But analysts said the data showed the labour market was preparing for the end of many of the curbs imposed by Prime Minister Boris Johnson in January, thanks to the country’s swift COVID-19 vaccination programme.

“As the economy prepares to re-open fully and economic activity picks up, businesses have increased their hiring to meet the rise in demand,” Yael Selfin, chief economist at KPMG UK, said.

The unemployment rate was likely to peak at 5.9% in the three months to December, after a jobs furlough programme ends in September, she said.