UK factory output grew at its fastest pace in nearly four years during the first quarter of 2014 and the trade deficit narrowed, official data showed today.

Today's figures added to signs that the UK economy is rebalancing.

The Office for National Statistics said manufacturing output grew by 1.4% in the first three months of the year, up from 0.6% in the last three months of 2013.

This was the best calendar quarter since the second quarter of 2010, as the sector recovers from a steep slump after the financial crisis, and the strongest growth for any three month period since October 2010.

Britain's trade deficit in goods with the rest of the world also narrowed more than expected, sinking to £8.478 billion, its lowest since December.

Earlier today NIESR, one of Britain's leading economics research think tanks, revised up its expectation of economic growth for 2014 to 2.9% from 2.5%.

Today's figures showed that industrial output dropped 0.1% on the month in March after a 0.8% rise in February, while factory output grew by 0.5%, building on February's 1% rise. 

Markets currently expect the Bank of England to raise interest rates from their record low 0.5% in the first three months of next year. 

The bank has said it wants to see spare capacity mostly used up before it raises interest rates, and to see the recovery led less by household demand and more by stronger exports and business investment.

Despite the recent pick up, manufacturing has lagged behind other sectors of the UK economy since the financial crisis, and is still 7.6% below its level in the first quarter of 2008, when overall economic output peaked.

The growth in factory output in the first quarter of 2014 was faster than the 1.3% pencilled into an initial estimate of gross domestic product released last month, but a steep fall in electricity and gas supply dragged down the broader industrial output measure. 

Industrial output overall expanded by 0.7% in the first three months of 2014, up from 0.5% in the last three months of 2013 but slower than the 0.8% estimate in last month's GDP data. 

Britain's economy overall expanded by 0.8% in the first quarter, and the ONS said that this estimate was not materially affected by today's new data on industrial output and construction output.

Construction grew by 0.6% in the first quarter of 2014, twice as fast as assumed in the GDP estimate, and in March was 6.4% higher on a year earlier - its strongest annual rise in six months and one driven by private housing.

But like manufacturing, construction is recovering from a low base and output is still more than 12% below its pre-crisis peak. By contrast, overall GDP is forecast to return to pre-crisis levels in the current quarter.

Last year the government launched Help to Buy, a scheme aimed at boosting demand for newly-built homes that has since been expanded to widen access to high loan-to-value mortgages.

UK house prices have risen by around 10% over the past year and are close to their peak before the financial crisis, fuelling concern that supply is not keeping up with demand and that parts of Britain are at risk of a property price bubble.