Manufacturing activity in the UK grew for the seventh consecutive month in February but expansion was subdued as orders at home and from abroad disappointed.
However, there was further evidence that producers are more able to pass on increased costs to customers as factory gate prices rose at their fastest in a year.
The Chartered Institute of Purchasing and Supply, in conjunction with the Royal Bank of Scotland, said its purchasing managers index recorded a weaker than expected reading of 51.7 last month, a touch softer than the upwardly revised 51.8 hit in January. A figure above 50 indicates expansion, below a contraction.
New orders increased for the ninth month in a row, though the reading of 52.6 is down from an average of 53.2 for the previous five months. The domestic market was the main driver of these orders, said CIPS/RBS, after demand from abroad was unchanged. The lack of growth in export orders is particularly disappointing. Analysts had hoped that the pick up in the the Eurozone economy, in particular, would have provided a boost to UK manufacturers.
Producers’ margins continue to be squeezed. The pace of input price inflation jumped to 65.7 compared with 61.6 in January, the fastest in 13 months, as firms again felt the effects of higher energy and commodity prices.
However, companies are enjoying more success in bumping up charges to their clients - the output price reading of 54.1 is the seventh consecutive month of improved pricing power and represents the sharpest rise in a year.
While this is better news for manufacturers the trend will be eyed with some concern at the Bank of England. The Bank’s monetary policy committee is mindful of any signs that inflation is being pushed through the supply chain.
Commenting on the implications for financial markets of the report, Richard McGuire, fixed income strategist at RBC Capital Markets said: “A modestly weaker manufacturing PMI headline, but indications of inflationary [pressures] passing through the survey lend the report a bearish slant for bonds. While this margin compression does not augur well regarding future manufacturing activity, the MPC will likely be mostly concerned by this survey’s negative inflationary implications.”
● Separately, the Bank of England on Wednesday said mortgage lending rose by £9.2bn in January, the biggest increase in almost two years. The figure chimes with the firmer housing market and the sharp annual rise in mortgage approvals revealed by the British Banking Association earlier this week. The Bank also reported that consumer credit rose by £1.3bn, with credit card lending increasing by £0.7bn. However, the annual growth rate of consumer credit continued to decline, hitting 8.7 per cent in January.
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