By Claire West

Data this morning has revealed a sharp jump in the UK’s manufacturing index, marking an encouraging pace of growth in the sector.

The index came in at 58.0 for November, greatly exceeding the market consensus for a modest decline on the month to 54.8. It is also a 16-year high for the index as industry output climbs. Although sterling remains below its intra-day highs, the figures have lifted the pound from its lows and a test of the €1.20 level is looking increasingly likely in the near term.

Duncan Higgins, senior analyst at Caxton FX says “This data is yet further evidence that Britain is not in need of further stimulus measures. November marks the third straight month that the pace of growth in the manufacturing sector has accelerated, which raises hopes that economic growth will be sustained through the fourth quarter.”

Higgins adds, “Figures from the services and construction sectors are due tomorrow, but on today’s evidence the economic recovery appears to be gathering pace. The threat posed by the spending cuts is still present but increasingly the economy is showing signs that it can weather the storm.”

Given the focus on the eurozone the impact of the data has been relatively slight, but it has nudged the pound higher and eroded the downside risks.

Higgins continues, “The UK has been slightly under the radar recently given the focus on the developing debt troubles in the eurozone. However, figures such as todays will remind the market that the UK economic picture is improving, which should support a stronger pound.”

“Looking ahead we feel that €1.20 is not too far from view. Tomorrow’s ECB meeting is likely to have heightened influence given the spiralling debt crisis and Trichet’s comments may lend the euro some fleeting support. However, on balance the euro’s downtrend is still firmly intact and as the price falls below $1.30 against the dollar, sterling should benefit.”