UK manufacturers are subdued about outlook as costs mount, CBI says

LONDON (Reuters) - British factories have reported a downturn this month with April's increases in tax and wages weighing on the mood but some firms are seeing a boost from an expected rise in defence spending in Europe, the Confederation of British Industry said.

The CBI's monthly balance for manufacturers' output expectations over the next three months dipped back into negative territory at -2 in March after climbing to a three-month high of +8 in February.

"Conditions in the UK’s manufacturing sector remain subdued," CBI lead economist Ben Jones said.

"Although there are some pockets of strength, notably in the aerospace and defence sectors, many firms continue to report that their order books remain weak," Jones said.

Manufacturers said their customers were nervous about proceeding with capital investments ahead of increases in April to social security contributions paid by employers and Britain's minimum wage, he said.

The CBI's headline industrial orders index slipped to -29 from -28 in February, well below its long-run average of -13.

The export order balance improved to a four-month high of -29 from -36 but also remained below average.

(Writing by William Schomberg; editing by Suban Abdulla)