UK factory growth cools on higher costs

Slow investment could put Bank of England a step closer to raising interest rates

British manufacturing growth cooled last month as cost pressures lurched higher, according to a survey that could put the Bank of England (BoE) a step closer to raising interest rates, despite a murky outlook ahead of Brexit.

Yesterday’s IHS Markit/ CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 55.9 from a downwardly revised 56.7 in August, undershooting the consensus of 56.4 in a Reuters poll of economists.

By contrast, Eurozone factories had their best month since early 2011. While the PMI survey signalled solid expansion at British factories, helped by robust exports, softer growth in new orders and a slowdown among producers of investment goods raised concern about the months ahead.

Analysts said yesterday’s survey, which showed a resurgence of price pressures, would do little to alter this judgement. “While the weaker economic backdrop is unlikely to deter the Bank from hiking in November, it does mean that the chances of a series of rate hikes after that are low,” said James Smith, economist at ING.

Costs paid by factories for goods shot up at the fastest pace since March, the PMI showed.