Manufacturers are going to have to bite the bullet and realise that rates are going to be rising soon

James Shugg, economist, Westpac bank

Manufacturing production rose by an unexpectedly high 0.4%, reflecting a surge in demand for chemicals and man-made fibres.

The increase came as total industrial output slipped 0.2% compared with January, pressured by a dip in demand for energy due to warmer than usual winter weather.

Outlook improves

The figures reinforce the view that manufacturers are poised to emerge from a year-long recession precipitated by global economic slowdown and exacerbated by the pound's strength against the euro.

The downturn has claimed tens of thousands of manufacturing jobs, with many high-profile employers including carmaker Vauxhall and steel producer Corus pushing through mass lay-offs.

The ONS' encouraging snapshot of UK industry tallies with recent surveys from the Chartered Institute of Purchasing & Supply, which has reported an increase in manufacturing activity for each of the past three months.

"The solid rise in manufacturing is something we can take some comfort from," said James Shugg, economist at Australian bank Westpac's London office.

Interest rate outlook

However, the latest data makes it more likely that the Bank of England will raise interest rates in the coming months, a move which could delay a full recovery.

The Bank's rate-setting monetary policy committee cut the cost of borrowing seven times last year to a 37-year low of 4% in an effort to shore up the ailing manufacturing sector.

But the MPC could take the sector's tentative recovery as a signal that its hands are now free to raise rates in order to choke off inflationary increases in consumer spending and borrowing.

"Manufacturers are going to have to bite the bullet and realise that rates are going to be rising soon even though they are pretty much still in recession," said Mr Shugg.

Most economists forecast that the next move in interest rates will be upwards, although they are undecided as to the likely timing of the increase.

The MPC is due to announce its next interest rate decision on 9 May.