Britain's economy has continued to defy expectations of a Brexit-induced slump after the manufacturing and construction industries capped off 2016 with robust growth.

Figures from the Office for National Statistics showed construction output beat expectations to rise by 1.8% in December on the back of new work, up from a revised 0.4% in November.

Manufacturing output also grew more quickly than economists had predicted, up 2.1% in December, while official data revealed Britain's trade gap narrowed in the final month of last year.

Growth driver: Manufacturing output grew more quickly than predicted, up 2.1% in December

The increase provided all of the growth in UK industrial production, which hit a six-year high in December with expansion of 1.1% from November, and was chiefly driven by the pharmaceutical sector.

Year-on-year, manufacturing output growth was up four per cent, far exceeding an expected 1.7% expansion.

The goods and services deficit - the gap between exports and imports - shrunk by £300million to £3.3billion in December after the export of goods to non-EU countries rose by £1.1billion to £43.8billion in the fourth quarter.

Exports to non-EU countries have nearly doubled in the last 10 years.

In contrast, exports to the EU rose just 3.5% as it becomes a smaller part of Britain’s export market.

Kate Davies, ONS senior statistician, said a pick-up in the exports of oil and aircraft had helped the trade gap decrease by £5.6billion to £8.6billion between the third and fourth quarter of 2016.

However, she said there was "little evidence" to suggest the collapse in the value of sterling since the Brexit vote had made an impact on the trade balance.

She added: 'Industrial output and the construction sector both remained broadly flat over the final quarter of 2016 but grew in December, with manufacturing growth driven by a strong month for often volatile pharmaceuticals and the expansion in construction led by house and commercial building.'

Firm foundation: Construction output beat expectations to rise by 1.8% during December

Meanwhile, sterling climbed above $1.25 today on the news, allaying fears of a slowdown as the Brexit process gathers pace.

The pound traded as high as $1.2515 from around $1.2480 just before the data, while the euro slid around 20 ticks to 85.03 pence.

British government bond futures modestly extended losses, dropping as low as 125.61 earlier, 35 ticks down on the day and about 10 ticks lower than where they were trading before the data.

Neil Wilson, senior market analyst at ETX Capital, said: ‘The pound jumped after manufacturing production figures beat expectations easily and provided another reason to be upbeat about the UK economy.’

He added: ‘So much for the Brexit meltdown – today’s data confirm that the UK economy remains very resilient and lends support to the Bank of England’s decision to revise up its 2017 growth outlook.

'It’s very much a risk-on kind of day in the markets after a good session overnight in Asia off the back of sparkling Chinese data and Donald Trump’s "phenomenal" tax plans, which sent US stocks to new all-time highs yesterday.

'Global growth expectations are rising and this ought to soften the impact of Brexit on Britain.'

Martin Beck, senior economic advisor to the EY ITEM Club, said: 'Outturn in both industry and construction exceeded even the strongest estimates.

'Although on their own these figures are not enough to move the dial on the GDP growth front, they provide a solid platform for Q1.

'It looks likely that these previously struggling sectors will be able to step up and help to mitigate the effects of the impending consumer slowdown

'Within the production sector, manufacturing output surged by 2.1% month-on-month.

'More than a third of this increase came from the volatile pharmaceuticals sub-sector, but the underlying picture does appear to be moving into line with the stronger story told by the business survey results.'

David Cheetham, market analyst at XTB, said: ‘Overall these data points indicate healthy levels of performance in their respective sectors.

‘And with the pound already higher across the board this week, there could be another leg up before traders break for the weekend.’