UK manufacturing weathered rising borrowing costs and financial market turmoil to reach a fresh three-year high in August, driven by the sector’s fastest growth in output in 13 years, according to a survey released on Monday.

The Chartered Institute of Purchasing Managers and NTC, the research group, said their index of manufacturing activity rose from an upwardly revised 55.9 in July to 56.3 last month, countering expectations of a slight easing in growth. Any reading above 50 indicates expansion.

The upbeat survey corroborates a positive report from the EEF manufacturers’ organisation, which found companies were planning to press ahead with autumn investment plans despite the crisis in credit markets.

This optimism among UK manufacturers contrasts with the sector’s weakening sentiment in the eurozone, where both France and Germany have experienced a decline in confidence.

Accelerating export orders and a robust domestic market underpinned the surge in production, while job creation reached its highest level in three and a half years.

“UK manufacturing is clearly thriving despite the twin evils of sterling strength and rising borrowing costs and, moreover, has yet to show any ill effects from the recent turmoil in financial markets,” said Richard McGuire, fixed income strategist at RBC Capital Markets.

Pressures on factory gate prices and purchasing costs appeared to be cooling, after sharp rises in July stoked fears that inflationary pressures could lead to a further interest rate rise. The index reading for output prices eased from 57.5 in July to 56, reflecting a drop in the index for input prices from 66.5 to 64.1.

“The fastest rate of growth of manufacturing output since 1994 combined with a reduction in inflation is an unexpected - and, for that reason, all the more welcome - combination,” said Geoffrey Dicks, economist at Royal Bank of Scotland. “For UK manufacturing this really is as good as it gets.”

The Bank of England is widely expected to leave interest rates unchanged when it meets on Thursday, opting to wait and assess the effects of recent market havoc and its five successive rate rises.

However, a run of upbeat data could increase the chance, which many feel is slim at present, of a rate rise before the year end.

“This survey, in tandem with the continued resilience of the housing market and, we suspect, an imminent re-acceleration of inflation back above target, ensures that the risks to the Bank’s policy rate will remain slanted to the upside for a while yet.” Mr McGuire said.

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