A strong performance by food and drink factories in the run up to Christmas, and statistical revisions, have contrived to save manufacturing from recession.

A further fillip for the economy came in trade statistics which showed goods exports rising at five times the rate of imports.

While economists had viewed it as near certain that the sector would, in the last three months of 2004, report a second successive quarter of contraction, factory output rebounded by 0.6 per cent in December, National Statistics.

The rise, spurred by a "significant increase" in production by food, drink and cigarette makers, was twice that the City had forecast.

National Statistics also raised by 0.7 points its November index figure for manufacturing production after the receipt of late data, all-but eliminating the steep decline which had been reported.

The statistics placed National Statistics’ assessment of manufacturing sector health nearer that outlined by industry reports.

Howard Archer, the Global Insight economist, said: "For once manufacturing output actually surprised on the upside.

"This brings the hard data more in line with the survey evidence which has been pointing to modest expansion in the sector rather than recession."

Barclays Capital said: "It is good that [National Statistics] has, at last, acknowledged that manufacturing activity has increased."

The data also raised the prospect that economic growth might, in the last three months of 2004, have proved greater than had been thought. National Statistics’ original assessment of 0.6 per cent expansion, quarter on quarter, was based around gloomy factory output figures.

"At long last the upward revisions to industrial production are starting to come through and that raises the possibility of an upward revision to GDP," John Butler, the HSBC economist, said.

The improvement in factory output was echoed in a separate National Statistics report showing a narrowing to £3.0 billion in the trade deficit in December, its lowest level for nine months.

While goods imports rose by 0.5 per cent, exports surged 2.5 per cent with particular growth in oil shipments.

The reports came as the Bank of England’s Monetary Policy Committee opened its monthly meeting on interest rates, with a decision due at noon tomorrow.

However, the figures were not viewed as sufficiently strong to tempt the MPC to raise rates from 4.75 per cent.

"Since today's data is better than expected by the markets, it is likely to strengthen the [pound] on foreign exchanges," Andrij Halushka, the Centre for Economics and Business Research economist, said.

"However, it is unlikely to prompt the Monetary Policy Committee to raise interest rates [at] its meeting that starts today."

The UK trade deficit hit a record last year of £57.6 billion despite the improvement noted in December.

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