January 22, 2020 / 11:02 AM / 3 months ago

UK factories' optimism highest since 2014 but activity weak: CBI

LONDON (Reuters) - Optimism in British factories hit its highest in almost six years in the three months to January, according to a survey that added to signs of a post-election boost, prompting investors to trim bets that the Bank of England will cut interest rates next week.

The Confederation of British Industry’s quarterly gauge of manufacturing optimism rose to +23 in January from -44 in October, its highest level since April 2014.

Still, gauges of output improved only slightly, adding to questions about whether a jump in optimism since Prime Minister Boris Johnson’s landslide election win last month will translate into stronger economic activity.

That is the dilemma that faces BoE policymakers who next week will decide whether to cut interest rates.

British government bond prices fell on the data and money markets showed only a 50% chance that the BoE will cut interest rates next Thursday, down from around 65% before the data.

“The results confirm other survey and anecdotal evidence pointing to economic growth stepping up a gear since December’s election,” Philip Shaw, chief economist of Investec, said.

The CBI noted that output and orders were still declining.

The vast majority of economists polled by Reuters - 60 out of 68 - do not think the BoE will cut interest rates next week and will instead wait to see how the improvement in optimism pans out for the economy more broadly in the next few months. [ECILT/GB]

“If we are to build on this rebound in optimism among UK manufacturers, it is crucial for the UK and EU to establish a trade deal that supports growth in this sector,” CBI deputy chief economist Anna Leach said.

Reporting by Andy Bruce

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