LONDON, Jan 27 - British manufacturers' optimism has risen to its highest level in nearly two years as order books showed the strongest growth in seven years, said a survey on Tuesday, reinforcing expectations of an interest rate hike next week. The Confederation of British Industry's quarterly industrial trends survey showed a positive balance of business sentiment for the first time in 18 months, with the index shooting up to +17 percent in January from -7 in October last year. The CBI said this was the highest level since April, 2002. New orders grew at their fastest pace since October 1996, before a surge in the pound precipitated the seven-year manufacturing downturn that now clearly seems to be over. Output grew for the first time in three years and at the strongest rate in eight. "The manufacturing sector is at last on the path to recovery and firms clearly believe the worst is behind them. Trading conditions have improved across the board," said Ian McCafferty, chief economic adviser at the CBI. But McCafferty cautioned that recovery depended on manufacturers' optimism actually being realised in the coming months and called on the Bank of England to raise borrowing costs slowly.
Nearly every City analyst expects the central bank to lift interest rates by a quarter percentage point to 4.00 percent next week, particularly after recent data showed the economy roaring ahead at the end of last year. The Treasury immediately welcomed the data. "Having maintained our stability during the world downturn, we are now seeing stronger and more balanced growth across all sectors of the economy," said a spokesman. But the CBI survey contrasts with recent official data that suggested the manufacturing recovery may be running out of steam. The Office for National Statistics said earlier this month that manufacturing output declined 0.7 percent in November but the CBI survey tends to be more forward-looking. The improvement in orders has come both from domestic and foreign sources as the global recovery continues to take hold, the CBI said. Export orders rose at their fastest pace since October 1996 and firms continued to be optimistic about future prospects from abroad despite sterling's surge against the dollar. The survey was carried out between December 11 and January 14 from a poll of 828 manufacturers.//