U.S. News

U.K. Factory Activity Slows, Input Costs Pick-Up


Growth in British factory activity slowed slightly last month, but price pressures remained strong, according to a survey on Monday which reinforced expectations of a further rise in borrowing costs this week.

The Chartered Institute of Purchasing and Supply/NTC purchasing managers' index (PMI) eased to 54.3 last month from a downwardly revised 54.7 in May. Analysts had predicted a reading of 54.8.

A reading above 50 indicates expansion, while anything below marks a contraction.

News of a marked pick-up in materials costs and signs that manufacturers remain confident about raising their prices will worry Bank of England policymakers, who have raised interest rates four times in less than a year to curb inflation.

The CIPS/NTC index of input costs jumped to a 9-month high of 65.7, while the output prices index eased slightly but remained close to a series high, at 56.8.

Financial markets showed little reaction to the data, which merely reinforced expectations that the BoE will raise borrowing costs for a fifth time this week to 5.75%.

"We fully expect a 25 basis point increase this week," said Philip Shaw, economist at Investec.
There were signs that demand at home is subsiding, with the total new orders index slipping to 54.7 from 55.5 in May to reach its lowest since January.

But the strong pound, which last week popped back over $2, does not appear to have dented demand for British goods abroad, with the export orders index rising to 54.0 from 53.6. Firms continued to take on staff last month, albeit at a slower pace than in May, with the employment index easing to 51.0.