By Ana Nicolaci da Costa and William Schomberg
LONDON (Reuters) - British factory orders fell in January but the prospects for the next three months were at their strongest in nearly two years, raising expectations that the lagging manufacturing sector is on the mend.
The total order book balance in the survey fell to -2 this month from +12 in December, steeply undershooting expectations for a reading of +10, the Confederation of British Industry's industrial trends survey showed on Tuesday.
But the survey's measure of the volume of total orders for the next three months rose to +22 from +14 and was at its highest since April 2012.
British manufacturing has been recovering from the financial crisis but remains below its 2008 peak, underscoring the challenge of re-balancing an economy which is heavily reliant on household consumption.
"The recovery in the manufacturing sector is continuing to build and confidence has improved," Stephen Gifford, CBI Director of Economics said.
"However, now is not the time to relax and take our foot off the gas. There are still risks ahead and our manufacturers need help to break into high-growth export markets."
The data showed the quarterly business outlook balance remained solid, easing to +21 in the three months to January from +24 in the three months to October, which had been its highest since April 2010.
The CBI said manufacturers' growing confidence in the recovery was feeding through to their investment plans - which the Bank of England has said the economy needs for the recovery to last.
Britain's economy staged an unexpectedly strong rebound last year, but there are concerns the rebound is too unbalanced to be sustainable - with too great a reliance on household consumption and insufficient exports and business investment.
The CBI's new domestic orders measure for the three months to January showed the strongest growth in nearly three years but the balance of new export orders eased over the same period.
However, analysts were encouraged by manufacturers' investment plans.
Investment intentions for buildings rose to their highest since January 2011 and also improved for plant and machinery, while the number of firms citing demand as a constraint to investment fell to its lowest since October 2010.
The survey suggests "that business investment will make a significant contribution to growth in 2014 and help the economy become more balanced and less dependent on consumer spending," Howard Archer at IHS Global Insight said.
"However, the dip in orders in January is a reminder that the manufacturing sector is not guaranteed a strong 2014."
(Editing by Ruth Pitchford)