UK manufacturing showed strong growth in January, driven by rising export orders and growing business confidence. The latest survey suggests the Bank of England may hold interest rates steady this week. The purchasing managers’ index (PMI), which tracks activity in the private manufacturing sector, rose to 51.8 in January from 50.6 in December. Any reading above 50 signals growth, and this is the highest reading since August 2024. The survey of around 650 manufacturers reported that new export orders grew for the first time in four years. Companies cited higher demand from Europe, the US, and China. Optimism about the year ahead also reached its highest level since before the 2024 autumn budget. Rob Dobson, a director at S&P Global Market Intelligence, which compiles the survey, said, “UK manufacturing made a solid start to 2026, showing encouraging resilience in the face of rising geopolitical tensions.” The positive manufacturing data adds to evidence that the UK economy has strengthened recently. A combined survey of manufacturing and services activity for January showed the strongest overall growth since April 2024. Official figures also revealed retail sales exceeded expectations in December, while GDP rose unexpectedly by 0.3% in November. A separate survey from the Institute of Directors showed economic confidence among its members reaching its highest level in eight months, climbing from -66% to -48% in January. Confidence in individual companies also rose to 14%, up from -4% in December. Analysts said this rebound reflects that uncertainty surrounding Chancellor Rachel Reeves’s November budget has eased. Earlier tax rumours had slowed investment and consumer spending, but business surveys now indicate stability has returned. The strong manufacturing data supports predictions that the Bank of England will keep interest rates at 3.75% when its monetary policy committee (MPC) announces its latest decision on Thursday. Signs of economic improvement are expected to convince MPC members to hold rates, at least until more data confirms that inflation is slowing. Official figures showed inflation fell to 3.4% in December from a summer high of 3.8%, but this remains above the Bank’s 2% target. The PMI survey also indicated that cost pressures are rising. Increases in employers’ national insurance contributions, higher minimum wages, and more expensive commodities, including metals, are putting pressure on factories. Despite the rise in new business, companies continued to reduce staff, though job cuts slowed to their lowest rate in 15 months. Some MPC members remain concerned about unemployment, which reached a near five-year high of 5.1%, potentially limiting inflation and supporting arguments for lower borrowing costs. Traders now see the chance of an immediate interest rate move as virtually zero. However, some dissent within the MPC is expected, with external members Alan Taylor and Swati Dhingra likely to favor cutting rates. In December, the committee split 5-4 when the Bank’s governor, Andrew Bailey, narrowly decided on a rate cut from 4% to 3.75%. The January PMI shows that UK manufacturing is starting 2026 with momentum, driven by exports, rising optimism, and strong business resilience. This trend strengthens the view that interest rates are likely to remain steady in the short term.