Industry's order books have recovered to their best level since March last year, boosted by a pick-up in demand at home.
The modest improvement in export orders recorded in the CBI's industrial trends survey in January has largely petered out this month.
But industry has succeeded in running down its stocks of finished goods, which are now back to where they were in October, the latest monthly survey shows.
This, combined with healthier order books, has encouraged more industrialists than at any time since last February to plan to increase their output in the coming three months - while those who think they can raise their prices in the domestic market outnumber those expecting to cut them for the second month running.
"With energy costs up sharply in recent months, and some disappointing developments in the global economy, there is no doubt that UK manufacturers still face a challenging business environ-ment," said Ian McCafferty, CBI chief economic adviser.
"Nevertheless, this survey provides some encouraging news.
"Demand conditions facing the sector are the best for nearly a year and, if respondents' expectations are realised, the decline in output through 2005 may finally be coming to an end."
The CBI survey shows those describing their order books as " below normal" still outnumber those saying their are "above normal".
But the adverse balance has fallen sharply to minus 18 per cent of the total sample from minus 28 per cent in January and a 12-month trough of minus 29 per cent last August.
This improvement came despite a worsening in export orders, described by 33 per cent as below normal, while only 16 per cent said they were above normal. The resulting adverse balance of minus 17 per cent followed one of minus ten per cent in January.
This was the least bad pointer for exports recorded by the CBI for more than a year. It now looks as if it may have been a false dawn.
Expectations of higher output appear better based. A solid 33 per cent of the 785 manufacturers who responded to this month's survey say they expect to step up their output. That produced a positive balance of ten per cent, up from minus four in both November and December and plus one per cent in January.
Stocks now appear well balanced, with 69 per cent of the respondents describing theirs as "adequate". But the balance of 13 per cent saying their stocks are more than adequate arises from only 18 per cent of the sample who feel they are over-stocked, and a marked lack of industrialists whose stocks are too low for comfort.
Price expectations have c hanged direction, too, although the balance of those expecting higher prices this spring has dipped to six per cent from 12 per cent in January. But these two months of pluses follow seven months in a row of price cuts since last April and an evenly balanced December.
"This is a better than expected survey, but it is unclear whether the greater optimism will be reflected in the official data," said John Butler, an economist at HSBC.
The CBI conducted this month's survey between January 24 and February 15 when Brent crude average $62.86 a barrel, against $59.02 a barrel during the January survey. The pound's value against both the dollar and the euro barely shifted between the two months.