UK factory growth cools
as weak pound fuels cost pressures: PMI
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[December 01, 2016]
By Andy Bruce
LONDON
(Reuters) - British manufacturing growth cooled unexpectedly in November
as factories grappled with soaring costs caused by sterling's slump
after June's Brexit vote, even before this week's jump in oil prices.
Thursday's Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI)
also suggested the weak pound failed to boost exports by as much as in
previous months.
Britain's economy has performed much better than expected since June's
vote to quit the EU. But a bigger test will come next year when
inflation is expected to rise sharply, eating into households' spending
power.
The PMI's gauge of prices paid by factories for materials and energy
shot up at a rate just shy of October's near six-year high, while prices
of finished goods again rose sharply.
Export growth, however, waned further from September's five-and-a-half
year high.
Wednesday's 10 percent surge in crude oil prices - after OPEC and Russia
agreed to restrict production - pushed the dollar cost of oil close to
levels not seen in 18 months, and drove home the cost pressures facing
British manufacturers.
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"Once again, price growth is the key story from this reading," said HSBC
economist Elizabeth Martins, who warned the spike in oil prices risked
further aggravating factory costs.
"For the manufacturing sector, this is not good news, undermining the
positive effects from weaker sterling on competitiveness."
The PMI's headline index fell to 53.4 from 54.2 in October,
undershooting expectations for a rise to 54.5 in a Reuters poll of
economists. Sterling, soaring 1 percent on the day against the dollar,
showed little reaction.
Business investment is another doubt hanging over the economy. The
Markit/CIPS survey showed signs of weakness.
"The trend in new orders for investment goods such as plant and
machinery has eased sharply so far in the fourth quarter," Rob Dobson,
senior economist at IHS Markit, said.
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![](../images/120116pics/busine11.jpg)
A worker at perforating company Bion uses a machine at the factory
in Reading, Britain September 22, 2016. REUTERS/Peter Nicholls/File
Photo
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Manufacturers, heavily reliant on migrant labor, hired greater numbers
of staff last month, the PMI showed.
Official data on Thursday showed net migration from the EU to Britain
hit a record high in the 12 months running up to June's Brexit vote.
But some employer groups said firms were worried about a shortage of
skilled workers, citing signs that the weak pound may already have made
Britain less attractive for migrants.
"There is a strong likelihood that the recruitment and retention
challenges of employers will be exacerbated further when EU migration
restrictions are introduced, which will affect low-skilled employers
especially," said Gerwyn Davies, labor market adviser at the Chartered
Institute of Personnel and Development.
(Editing by Larry King and Hugh Lawson)
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