British manufacturers' expectations for price rises in the next few months fell to their lowest since late 2020 and they ramped up forecasts for output too, a survey from the Confederation of British Industry showed on Thursday.

The CBI's gauge of average prices for the next three months dropped to +2 from +20 in June, the lowest reading since December 2020.

The survey added to signs of cooling price pressure in the economy ahead of the Bank of England's Aug. 1 interest rate announcement, although policymakers are worried by wage growth and services sector inflation.

New orders contracted at a faster rate in July, although manufacturers' expectations for output rose at the fastest pace since March 2022.

"The near-term outlook for the sector remains positive amid an ongoing recovery in the wider UK economy," said Ben Jones, CBI lead economist.

While quarterly data from Thursday's survey showed a drop in business confidence over the past three months, Jones said it may prove to be a lull.

"The share of manufacturers working below capacity has fallen sharply over the last quarter, feeding through to a more positive outlook for both hiring and investment."

(Reporting by Andy Bruce; editing by David Milliken)