LONDON: Output for the UK’s manufacturing sector grew at its fastest rate for 2½ years in January while input prices rose by the most on record, according to the latest survey of purchasing managers working in the industry. The main source of new orders was the domestic market, although there was also a modest increase in exports. January’s headline survey reading from IHS Markit fell to 55.9, slightly down from December’s 2½-year high of 56.1. The survey reports the proportion of purchasing managers who say January was an improvement on the previous month, so anything above 50 indicates more said it was better than not. Manufacturing makes up about 10 per cent of UK gross domestic product and has been central to hopes that the fall in the pound following the EU referendum would help rebalance the British economy away from a consumption and services driven model to an export-driven one.
Survey results will provide encouragement for those hopeful about growth in manufacturing but also bolster the case of those pessimistic about the prospect of higher inflation. “The big numbers coming out of the January survey were for the price measures. Input cost inflation spiked to the highest seen since data were first collected in 1992,” said Rob Dobson, senior economist at IHS Markit. A weaker exchange rate and rising commodity prices were mainly blamed for the increase in input prices, although some respondents did also mention that higher demand for goods overall was leading to a shortage of capacity. So far there has been a limited effect on consumer prices from the fall in the pound as businesses have absorbed much of the increase in raw material costs. However, January’s survey showed manufacturers started to try to pass on their higher input costs to their customers. Economists expect companies will increasingly pass on these costs this year.