UK manufacturing growth accelerates as export orders rise

British manufacturers enjoyed one of their best months since Labour came to power in January, according to a closely watched survey, adding to signs that the Bank of England will decide to keep interest rates on hold this week.The purchasing managers’ index (PMI), which measures activity in the private manufacturing sector, rose to 51.8 in January from 50.6 in December, the best reading since August 2024. Any reading above 50 represents growth.The monthly survey of about 650 manufacturers showed new export orders rose for the first time in four years in January, while optimism about the year ahead reached its highest level since before the 2024 autumn budget. Factories reported receiving a higher volume of orders from Europe, the US and China.Rob Dobson, a director at S&P Global Market Intelligence, which compiles the survey, said: “UK manufacturing made a solid start to 2026, showing encouraging resilience in the face of rising geopolitical tensions.”The upbeat survey contributes to the growing evidence that the UK economy has strengthened in recent months. A combined PMI survey of activity within the manufacturing and services sector for January presented the strongest upturn in business activity since April 2024, while official figures showed retail sales performed better than expected in December and GDP rose by an unexpected 0.3% in November.A separate survey from the Institute of Directors, released on Monday, showed economic confidence among its members reach the highest level in eight months in January, rising from -66% to -48%. Although the reading was negative, it was a rebound from near record lows last year, while business directors’ confidence in their own companies increased to 14% in January, from -4% in December, the IoD said.The figures suggested the impact of uncertainty around Rachel Reeves’s recent budget in late November has now subsided, after on-off tax rumours related to the chancellor’s statement caused investment and consumer spending to slow, according to business surveys.The collection of economic data will add to predictions that the Bank will keep interest rates at 3.75% when it announces its latest decision on Thursday.Signs that the economy is picking up is expected to persuade the nine members of the Bank’s monetary policy committee (MPC) that they should hold off on a rate cut until they can see more data showing that inflation is slowing. Official figures showed inflation was 3.4% in December, down from the summer’s high of 3.8%, but still some way off the Bank’s target rate of 2% from November.The manufacturing PMI survey showed that “cost pressures are creeping higher”, owing to the rise in employers’ national insurance contributions since April and an increase in the minimum wage, alongside higher costs for commodities such as metals.However, some MPC members have expressed concern about redundancies rising and figures that showed UK unemployment at a near five-year high at 5.1%, suggesting these factors are enough to curb inflation and increase the argument for lower borrowing costs.The PMI survey showed that the rise in new business for British factories was not enough to stop companies reducing their staff numbers, although the rate of job cuts slowed to its lowest level in 15 months.Traders have put the chance of a move on interest rates at virtually zero, but there is likely to be some dissent within the MPC, and external members Alan Taylor and Swati Dhingra are expected to be in favour of cutting rates. December’s cut from 4% to 3.75% showed a divided committee, with the Bank’s governor, Andrew Bailey, swinging the vote 5-4.