British manufacturing raced ahead in July at its fastest pace in a decade as domestic and foreign new orders surged, a report showed on Monday as the Bank of England appears set to raise interest rates again this week.
The Chartered Institute of Purchasing and Supply/Reuters purchasing managers' index shot up to 56.3 - its strongest since October 1994 - from an upwardly revised 55.0 in June and analysts' expectations of 54.5.
The survey's output index rose sharply to 59.5, its strongest reading since September 1996 and way above the 50 threshold separating expansion from contraction.
"All in all, it would tend to cement the case for a quarter point rate rise from the Bank of England this week," said Mark Miller, economist at HBOS Treasury.
Government bonds and short sterling interest rate futures promptly pared back their earlier gains as dealers reckoned that the BoE may raise rates even faster in the months ahead.
Recent official data have shown a long-awaited rebound in manufacturing output, but so far not at the robust pace seen in surveys. The next official manufacturing data for June will be published on Thursday. Manufacturing in the euro zone also appears to be doing better. The Reuters Eurozone purchasing managers' index, also published on Monday, rose to 54.7 in July from 54.4 in June.
CIPS said the improvement in the UK survey was driven by new orders in the investment goods industries. Companies had increased investment in plant and machinery as the outlook for the local and global economic recovery brightened.
The new orders index rose to 58.1 in July from 55.6 in June while the index measuring export orders increased to 54.2 from 53.5.
Manufacturers added staff for the fourth month running in July to cope with rising new orders, pushing up the employment index to 51.5 in July from 50.4.
Oil prices have risen sharply recently on concerns over supply disruption from embattled Russian oil major YUKOS. Brent crude oil futures jumped to a 14-year high on Friday, trading at a level not seen since the 1990 Gulf War.