The pound against the dollar this morning after a closely-watched index revealed the UK's manufacturing index missed expectations in December.
Sterling dropped 0.2 per cent against the euro to €1.1214 after IHS Markit's purchasing managers' index (PMI) for the manufacturing industry fell to 56.3 in December, down from 58.2 in November, its highest since 2013.
Although the figure was still well above 50, the no-change mark above which indicates growth in the sector, it was below economists' expectations of 58.
The research suggested the impact of inflation eased in December as increases in input costs slowed to a four-month low, but it warned that increases in costs "remained marked overall".
"Although still running at elevated levels, this at least provides signs that the recent surge in price inflation is starting to abate," said Rob Dobson, director at IHS Markit.
"This trend should continue at the start of 2018, as supply-chain pressures hopefully ease further."
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, suggested the strength of the sector was beginning to shine through.
“Concerns that businesses were driving exports largely as a result of the weakened pound are abating, with evidence of lasting relationships with new supply chains abroad, showcasing the full potential of the UK’s manufacturing capabilities," he said.
“With EU trade talks set to begin this year, it brings with it the prospect of greater clarity for the UK’s future trading relationships with key export markets.
“Although headwinds remain in the form of persistently high inflation, pushing up the price of materials, along with reports of relatively weak consumer demand, this reading nevertheless suggests the sector is well-set for growth this year.”