UK factory output at two-and-a-half year high in December, CBI says

Factory output in Britain picked up sharply in December alongside a sharp jump in price expectations, one of the most widely-followed surveys for activity in the sector revealed.

The Confederation of British Industry's gauge of manufacturers' output rose to a reading of +19 for the three months to December - its highest level for two-and-a-half years - from +4 for the three months to November.

Production increases were broad-based by sectors.

Companies' order books held up well, with the total orders balance rising from -3 to 0 (consensus: -5.0), versus a long-run average of -15.0.

On the flip side, a sub-index tracking expectations for average selling prices over the coming three months increased from +19 to +26 - its loftiest in five-and-a-half years - as a result of weakness in the pound.

Inflation expectations were strongest in the food & drink sector, whereas the motor vehicle & transport sector exerted the greatest drag, CBI said.

More firms judged their level of stocks to be "adequate", with a sub-index rising from +3 to +10, although it remained below the long-run average of +14.

Expectations for output levels for the next three months slipped from +24 to +21, a level consistent with growth in factory output of roughly 1% on a quarterly basis, Paul Hollingsworth, UK economist at Capital Economics said in a research report sent to clients, contrary to the 1.0% drop estimated by ONS for October.

"December’s CBI Industrial Trends Survey offered another reason to think that the manufacturing sector is in better health than the recent weak official data suggest," he added.

"Looking ahead, uncertainty surrounding future trade relationships might continue to prevent exporters from taking full advantage of the drop in the pound. But the domestic economy’s resilience should ensure that the manufacturing sector continues to hold up well over the next year or so."