British factory orders fell unexpectedly in January as export orders fell to the weakest level since December 2011, according to the Confederation of British Industry (CBI).
The CBI survey of 389 manufacturers showed that the total order book balance dropped to -20 this month from -12 in December, confounding expectations of a reading of -11.
This was driven by a sharp drop in export orders, as this balance slumped to a 13-month low of -29 in January from -11 in December.
However, despite the drop in orders, the balance of manufacturers expecting to increase their output over the next three months climbed to +8 in January from 0 in December and -9 in November (Xetra: A0Z24E - news) , with +14 expecting total orders to rise over the next three months.
Manufacturers also expect to increase their headcount over the next three months (+13), as well as investment into the sector.
"While domestic demand and business optimism have steadied, export demand remains a concern for manufacturers, with orders continuing to fall, albeit at a slower rate," said the CBI's head of economic analysis, Anna Leach.
"There are encouraging signs of stability in overall demand however, with domestic orders, export orders and production expected to rise in the quarter ahead."
Howard Archer, chief UK and European economist at IHS Global Insights, that while the overall impression was that the manufacturing sector was over the worst of a "pretty torrid 2012, it still has its work cut out to return to sustainable growth in the face of ongoing challenging domestic and international conditions"
Samuel Tombs, UK economist at Capital Economics, said that amid continuing signs that the eurozone's recession was deepening, "2013 looks set to be another tough year for UK manufacturers".
Earlier this month, PMI manufacturing figures showed that the sector had unexpectedly grown in December at the fastest pace in 15 months, boosting hopes of a better 2013 for the sector.
Growth in both output and new orders helped to push the headline manufacturing PMI up to 51.4 last month from 49.2 in November, where anything above 50 signals expansion.
It was the first time the Markit/CIPS index showed expansion in the manufacturing sector since March 2012, and economists had expected another month of contraction forecasting 49.1 for the headline index.