UK factory output rises at fastest pace since 1995 -CBI

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By Andy Bruce

LONDON, July 25 (Reuters) - British factories increased output at the fastest rate since the mid-1990s over the past three months, according to a survey published on Tuesday that suggested manufacturing might help to support the economy as it slows during 2017.

Manufacturing accounts for about one-tenth of Britain's economic output.

The Confederation of British Industry's quarterly balance for manufacturing rose to +31 in the three months to July, the highest reading since January 1995 and up from +22 in the three months to April.

In July alone, however, new orders slowed slightly more than expected, to +10 from +16 in June.

The picture on exports was mixed too, adding to signs that the pound's sharp fall since last year's Brexit vote has yet to trigger a deluge of orders from abroad.

Export orders slowed in the three months to July, but manufacturers' optimism about exports over the coming three months rose to the highest in 40 years, the CBI said.

The Bank of England is focusing closely on gauges of exports and investment by businesses ahead of next week's interest rate decision.

BoE (Shenzhen: 000725.SZ - news) policymakers are hopeful that companies will help offset the cautious mood among consumers, who have been hurt by a sharp rise in inflation stemming largely from the fall in sterling. But most economists expect the BoE will keep rates on hold until 2019 as the country exits the EU.

Economists said Tuesday's figures from the CBI looked upbeat but warned that improvements in the survey have yet to be borne out by official data. Other surveys, like the Markit (NasdaqGS: MRKT - news) /CIPS PMI, have shown a slightly less positive picture for British manufacturing output and exports.

JPMorgan (LSE: JPIU.L - news) economist Allan Monks said it was possible that the manufacturing sector will make a strong contribution to the overall economy in the third quarter, if the surveys are right.

"But much will depend on how the consumer and services data -- which continue to look soft overall –- evolve this quarter," Monks said.

Britain is due to publish its first estimate for economic growth in the second quarter on Wednesday. Economists expect the economy expanded 0.3 percent compared with the first three months of the year, when it grew 0.2 percent.

(Reporting by Andy Bruce; Editing by David Milliken and Catherine Evans)