Pound rises as industrial production climbs to six-year high

 
Emma Haslett
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The rise was driven by the manufacturing sector (Source: Getty)

The pound climbed back above $1.25 in morning trading, after official figures showed industrial production in the UK reached a six-year high in December.

The Office for National Statistics' index of industrial production rose to 106.03 in December, its highest since January 2011, when it hit 106.16.

The figures showed total production rose 1.1 per cent in December compared with the month before, largely thanks to manufacturing, which grew 2.1 per cent.

Production output for the whole of 2016 was estimated to have increased 1.2 per cent, with manufacturing increasing 0.7 per cent.

The news comes despite inflationary pressures from falling sterling, which has increased input prices for manufacturers.

But analysts have been encouraged by the sector: a report last month suggested firms in the sector will make a comeback on the UK's junior market in 2017, with a rash of oil and gas companies expected to list on the Alternative Investment Market (Aim) in the coming months.

Meanwhile, economists warned of volatility in the sector.

"Around one third of the increase in manufacturing output was driven by a huge 8.3 per cent month to month increase in output in the pharmaceuticals sector, building on November’s 10.6 per cent gain," pointed out Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"Pharmaceuticals output is extremely volatile and likely will mean-revert in the first quarter, severely dampening growth in overall production."

The news comes weeks after figures showed the UK's manufacturers had continued to shrug off Brexit fears, with Markit's purchasing managers' index suggesting growth in the sector reached its highest point since May 2014 in January.

Figures also published this morning showed the UK's construction sector also beat expectations in December, rising 1.8 per cent – while the trade balance narrowed in the fourth quarter as exports to countries outside the European Union rose sharply.

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