UK manufacturing finished 2012 on a positive note after hitting a 15-month high in December.

The Markit Purchasing Manager's Index rose back above the 50.0 no-change level in December, beating expectations by registering 51.4.

Economists had pencilled in a contraction in activity, with a consensus estimate of 49.1.

However, the survey showed that manufacturers remain cautious, reporting lower levels of purchasing, the running-down of inventories, and a reluctance to employ more people.

December's higher output was driven by demand from the domestic market.

The total volume of new work received increased for the second month in a row, despite the level of new export orders contracting again.

Overseas demand fell in every month of 2012 as conditions in the UK's main export partner, the Eurozone, have generally remained subdued throughout this period.

Manufacturing output increased for the second month running, with the rate of growth accelerating sharply to a 20-month high.

The sharpest gains were reported by consumer and intermediate goods producers (those that are used to create the finished product).

While employment fell for the eighth month running in December, the rate of job loss was negligible and the least marked for four months.

Companies tended to link job losses to restructuring, natural wastage and the non-replacement of leavers.

Signs of spare capacity also remained, with a further substantial decrease in backlogs of work.

Rob Dobson, Senior Economist at Markit, said December's PMI data signalled a reassuringly solid return to growth for the sector.

"However, this does little to change the view that the sector contracted over the fourth quarter as a whole following the temporary growth surge of 0.7% in the third quarter," he warned.

Dr Howard Archer, Chief UK Economist at IHS, said the marked pick-up in manufacturing activity in December was a significant boost to hopes that the economy was at least flat in the fourth quarter, thereby avoiding a triple dip.

"With construction output jumping 8.3% month-on-month in October and the services sector seemingly growing marginally in October and November, it was the possibility of a sharp drop in manufacturing output that seemingly posed the main risk to the economy in the fourth quarter," he said.

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