By William L. Watts, MarketWatch LONDON (MarketWatch) -- A closely-watched indicator of activity in Britain's manufacturing sector surged to a 15-year high in January, accompanied by a record jump in new export orders as a result of the weak pound, Markit Economics and the Chartered Institute of Purchasing and Supply said Monday. The January manufacturing PMI rose to 56.7 from an upwardly revised 54.6 in December for its highest reading since October 1994. Economists had expected a reading of 54.0. A figure of more than 50 means a majority of managers saw a rise in activity, while a reading of less than 50 signals a decline. The index has been above the neutral 50 level for four consecutive months. The survey's gauge of new orders rose to a six-year high, with export orders jumping to the highest level since the series began in 1996. "It would appear sterling weakness is finally beginning to pay dividends for U.K. exporters," said Richard McGuire, senior fixed-income strategist at RBC Capital Markets. The pound has fallen by more than 15% on a trade-weighted basis since 2007. The survey also found a small rise in manufacturing employment, the first increase in 21 months. Chartered Institute of Purchasing and Supply CEO David Noble said the data were "very positive news," but noted managers were cautious about the outlook. "The spike in purchasing activity was attributed to inflationary concerns and delivery delays, rather than increased client demand," Noble said. A fragile market also meant firms shied away from boosting selling prices, he said. The data will also help ease some of the Bank of England's concerns about the muted pace of the recovery, McGuire said, while also raising questions about the weaker than expected 0.1% rise in fourth quarter U.K. gross domestic product reported last week by the Office for National Statistics. The British pound posted little reaction to the data and remained down 0.7% versus the U.S. dollar at $1.5863. The euro rose 1.1% to 87.61 pence. Strategists said the euro's overall rebound amid a reduction in anxiety over Greece's fiscal woes helped sink the pound. Meanwhile, broad money supply contracted in December. The Bank of England's preferred measure, M4 excluding other financial institutions, fell 0.5% on the month in December after a 0.9% rise in November. On a quarterly annualized basis, the measure fell 0.5% in the three months ending in December, compared to quarterly falls of 2.5% in November and 5.8% in October. Economists said the data underline questions about the effectiveness of the Bank of England's 200 billion pound quantitative-easing program, which consisted of electronically creating money that was used to purchase assets, mostly British government bonds. The money supply data "continue to point to the BOE's efforts to boost the supply of money being perhaps limited by a decline in its velocity -- a product both of lenders' reticence to extend credit but also borrowers' unwillingness to borrow," McGuire said. The purchases are now complete. Surveys show most economists expect the bank's Monetary Policy Committee not to extend the program when they conclude their monthly policy meeting Thursday.

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