Outlook in factories markedly better

The sector started 2010 in resurgent fashion, with new orders setting a multi-year high and employment growing for the first time in nearly two years, according to the Chartered Institute of Purchasing & Supply (CIPS).

Its monthly headline activity index, where a score over 50 registers growth, showed a reading of 56.7 in January – the highest level since October 1994.

The result, ahead of an upwardly revised 54.6 seen in December, was far better than had been expected after many economists pencilled in a small decline.

A rise in employment also came as a welcome development for the sector, albeit following a "slight increase", said CIPS.

UK manufacturers have cut many thousands of jobs after being hammered by the recession.

But the weak pound is providing a boost, with new export orders at the highest level since CIPS began collecting export data in 1996.

This, combined with improvements in domestic demand, helped total new orders to rise at the fastest pace in six years.

David Noble, CIPS chief executive, said the January result was "a great way to start the year" for the embattled sector.

He added: "Although the manufacturing sector represents a smaller proportion of total UK GDP than 10 or 20 years ago, it is still a very important part of the economy."

Lee Hopley, chief economist at manufacturing body EEF, said "An export-driven recovery looks likely to take centre stage as the main driver for growth across the economy, although rising costs mean that manufacturers will have one eye on inflation and continued cost control."