U.S. News

UK Manufacturing Growth Slows


British manufacturing activity growth unexpectedly slowed in November to its weakest pace in eight months and firms' prices rose at their slowest rate in six months, a survey showed on Friday.

The CIPS/RBS Purchasing Managers Index fell to 52.6 in November from a downwardly revised 53.5 in October to record the lowest reading since March and confound analysts' forecasts for an improvement to 54.0.

The pound fell nearly a third of a cent against the dollar, backing off a 14-year high, and interest rate futures extended gains after the data, which analysts said suggested British economic growth could slow next year.

"While the manufacturing recovery has been quite impressive over the last year, today's figures illustrate its fragility," said George Buckley, economist at Deutsche Bank.

"With global growth forecast to ease in 2007, we see downside risks to UK growth."

Still, economists said the data did not alter expectations that the Bank of England would hold interest rates steady at 5.0% next week.

The survey showed factory output growth slowed markedly, partly due to supply disruptions. But orders growth also slowed, while export orders may have been dented by the strong pound.

Moreover, firms cut jobs for the first time in six months in a move to increase efficiency as they were unable to raise prices to keep up with surging costs.

And factory gate inflation eased sharply, with the output prices index slipping to a six-month low of 53.8 from October's 3-month high of 56.0, while the index of firms' input costs eased to 63.2 from 63.4 -- its lowest since January.


The figures suggest companies have not been able to make October's price hikes stick and may provide some comfort to policymakers worried about inflation pressures.

The Bank of England lifted borrowing costs to 5.0 percent in November, its second hike in three months to tame inflation.

Analysts are divided on whether it will hike again in early 2007, mindful that much will depend on the New Year pay round.

But a weakening in other components of November's survey suggested policymakers may want to keep rates steady for longer.

Factory output growth decelerated to its weakest in eight months, with an index reading of 53.9 in November from 54.9, which firms blamed partly on disruptions in the supply of raw materials.

New orders expanded at their weakest rate in three months, and export orders growth was also more subdued, possibly as a result of the stronger pound, which last month hit a two-year high on a trade-weighted basis.

It has since climbed further, hitting a 14-year high against the dollar on Thursday.

BoE Governor Mervyn King said while that would likely hit firms that export to the United States, businesses selling to the euro zone were benefiting from an upturn there.

Still, the PMI survey showed manufacturers cut staffing levels for the first time in six months and at their sharpest rate since January, with an index reading of 47.6 against 50.0 in October.