Pound leaps after surge in manufacturing output

The latest stunning evidence of a UK manufacturing revival sent the pound surging to a five-year high yesterday as the City upped its bets on early interest rate rises.

Firms saw much faster growth than expected in April and are adding jobs at the rate of 10,000 a month, according to the Chartered Institute of Purchasing & Supply (Cips), whose latest snapshot of industry activity sent dealers piling into sterling. The currency rose to $1.6921 following the release of the figures, its highest since early August 2009, and gained ground against the euro.

The Cips survey showed industry output rising at its fastest pace for eight months as improved demand from domestic and export markets fuelled the recovery.

It comes days after official estimates showed the UK managing 0.8 per cent growth in the first quarter of 2014. The economy is now 3.1 per cent bigger than a year ago, its best showing in more than six years.

The momentum behind manufacturers heightened speculation that the Bank of England’s Monetary Policy Committee will pull the trigger on rate rises more quickly than the spring of 2015, which it has previously guided as “reasonable” timing for rate hikes.

Futures markets now have a rate rise fully priced in for April next year, a month before the general election, although many economists say an earlier move is increasingly likely with unemployment dropping sharply.

The Bank’s stance on policy contrasts with continuing, albeit slowing, stimulus in the United States and expectations that the European Central Bank could embark on some form of quantitative easing to kick-start a sluggish recovery.