01/02/2018 10:53 GMT

UK Manufacturing Industry Starts 2018 With Growth And Costs Blow

Output in Britain’s manufacturing sector has unexpectedly slipped at the start of the year as the industry grappled with a double-whammy hit of slowing growth and escalating costs.

The closely watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 55.3 last month, down from 56.2 in December, with economists expecting a figure of 56.5.

A reading above 50 indicates growth.

Despite chalking up another solid rise, the rate of expansion drifted to a six-month low and came in shy of November’s heady climb when the sector reached its highest level for more than four years.

January’s slowdown was coupled with biting price pressures, as firms were confronted by a perfect storm of increased input demand and a shortage of raw materials, causing purchasing prices to hit an 11-month high.

Rob Dobson, director at IHS Markit, said: “Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6% in January, with jobs also being added at a faster pace.

“However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low.

“The trend in demand will need to strengthen in the near term to prevent further growth momentum being lost in the coming months.”

Sterling was little moved by the announcement, trading up 0.5% at $1.425.

The report revealed that output and new orders had enjoyed a “solid increase” across the consumer, intermediate and investment goods sectors.

Overseas appetite for UK products also proved strong in January, expanding at the fastest rate for four years thanks to rising sales in China, Japan, North America, the Middle East and Europe.

Despite the stuttering start to 2018, more than 55% of manufacturing firms expect production to grow in 12 months’ time, as they feel more confident about the prospect of bulkier order books and overseas growth.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said January’s slowdown was largely driven by weaker demand on home soil.

He said: “The recovery in the UK’s manufacturing sector lost more momentum in January as large price rises subdued domestic demand.

“The export orders balance picked up to 56.2, from 55.4 in December, so the drop in the total orders balance to 56.0 – its lowest level since June – from 56.9, entirely reflected weakness in domestic demand.”

He added: “All the survey’s balances are volatile and global demand is strong, so it’s too soon to call time on the manufacturing sector’s growth spurt yet.

“But today’s survey hints that the best days of the manufacturing sector’s recovery lie in the past.”

The PMI update comes after the latest slew of official data showed Britain’s economy unexpectedly rose in the fourth quarter.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.5% in its initial estimate for October to December last year, following growth of 0.4% in the third quarter.