LONDON (Reuters) - A key British manufacturing survey rose to its highest level in over 15 years last month, and banks said they planned to step up corporate lending, in sign that the recovery is gaining strength.

However, the improvement is likely to take longer to filter through to households. The CIPS/Markit PMI purchasing managers' survey reported a small fall in factory employment, and a separate study showing less generous collective pay deals.

The main news in support of recovery was a rise in the headline manufacturing PMI index to 57.2 from 56.5, a bigger jump than economists had forecast and the index's highest level since October 1994, when the economy was also emerging from recession.

With some caveats, economists treat the PMI and its output component as a proxy for growth in factory production, and Capital Economics estimated that it pointed to a quarterly rise in manufacturing output of just under two percent, almost double the one percent growth shown in official data for January.

"The report suggests that the industrial recovery is continuing to pick up pace nicely," said Capital Economics' Vicky Redwood.

However, she added that recent growth estimates based on the PMI had proven to be over-optimistic, and noted that new orders growth had slowed modestly.

The PMI output component rose to 61.9 in March from 59.8, its highest since July 1994. Although new order growth slipped fractionally in February, it remained close to January's six-year high due to new product launches and the start made by some firms in rebuilding depleted inventories.